MexECON Blog

Central Bank Holds Rates at 3.50 Percent

In a decision Friday, policymakers at Banco de México held their benchmark interest rate unchanged at 3.50%, right where it has been since the last in October.  In their statement, the policymakers said some sectors of the Mexican economy had begun to look stronger in the first quarter of 2014.  They were particularly encouraged that exports appeared to be increasing again and that government spending was becoming more dynamic.  Nevertheless, the policymakers noted that growth in the first quarter seemed to be weaker than forecast.  With significant risks to the downside and continuing slack in the labor market, the policymakers said Mexican inflation was now likely to fall below 4.0% by the end of the year and would eventually reach their target of 3.0%.

Comment:  Now that global investors have gotten used to the U.S. Federal Reserve's ongoing reductions in asset purchases, they are less worried about liquidity drying up, and they are pulling less funds out of emerging markets such as Mexico.  With the financial markets more stable again, Banco de México no longer needs to contemplate a potential rate hike to keep attracting capital into the country.  It can instead focus on keeping rates low to encourage a reacceleration in economic growth, at least for the time being.  Mexican interest rates therefore seem likely to remain stable for a while. 

Patrick Fearon, CFA
Vice President, Fund Management

Benchmark Rate 1404

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