MexECON Blog

Central Bank Holds Rates at 4.50 Percent

In a decision on Friday, policymakers at Banco de México held their benchmark interest rate unchanged at 4.50%, right where it has been for the last 35 straight months.  In their statement, the policymakers said the Mexican economy continues to trend upward, as stronger exports have offset a slight deceleration in some aspects of domestic demand.  However, they said the balance of risks for Mexico has become more negative because of external threats such as the European debt crisis.  The policymakers noted that the rise in Mexican inflation during June stemmed mostly from increasing vegetable costs, but because those costs were in large part driven by Mexico's current drought, they thought the impact would prove transitory.  Because of the rise in food costs, the policymakers believed near-term inflation risks had worsened, but because of the problems from abroad that threaten to slow economic growth worldwide, they felt medium-term inflation risks had fallen.  The policymakers forecast that overall inflation in Mexico would continue to trend toward their goal of 3.0%.  They promised to remain attentive to the evolution of inflationary pressures and adjust policy "to make it more or less restrictive, depending on the scenario that presents itself."

Comment:  Although some media sources have interpreted the policymakers' statement as pointing to a possible future rate hike, I think it was much more balanced.  The policymakers are simply saying that they stand prepared to either raise rates or lower rates, depending on the situation.  On balance, that suggests Mexican interest rates are probably on hold for the foreseeable future. 

Patrick Fearon, CFA
Vice President, Fund Management

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