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 three years.  In their statement, the policymakers said the Mexican economy continues to exhibit a positive trend, with exports rising and domestic demand increasing.  However, they judged that the balance of risks had continued deteriorating because of because of economic problems abroad.  The policymakers admitted that the recent acceleration in Mexican inflation had been unexpected, but they argued that the rise had come in large part from food supply shocks that would likely be temporary.  While the policymakers forecast that inflation in Mexico would remain above 4.0% for the time being, they still expected it to eventually fall toward their goal of 3.0%.  They promised to remain attentive to the evolution of inflationary pressures and adjust policy as necessary, paying particular attention to whether the recent increase in food costs and the weakness of the peso would lead to second-order price increases.

Comment:  The policymakers' statement continues to suggest that they are not worried about inflation.  Therefore, it does not appear that Mexican interest rates will change in the near future.  There is some chance that the policymakers are behind the curve.  If Mexican inflation keeps accelerating, they could be forced into significant rate hikes in the future.  For now, however, there is probably little chance of a change in rates.

Patrick Fearon, CFA
Vice President, Fund Management

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