Key Mexican Interest Rate Left at 4.5% as Anticipated

February 19, 2010

The Bank of Mexico’s key interbank interest rate has been 4.5% since last July 17th and will remain there at least another month in spite of a jump in CPI inflation last month to 4.5% and related to some tax increases.  A statement released by bank officials saw no evidence yet of second-order inflationary effects and maintained that expected inflation remains anchored, albeit somewhat above the medium-term target of 3.0%, which officials hope and expect to attain by the end of 2011.  There is still plenty of slack in Mexico’s economy, which didn’t pull out of recession until 3Q09.  However, the recovery that has emerged is faster than officials were expected, and the statement says that they will continue to scan for evidence of higher expected inflation or second-order price gains and will act if such are spotted.

In each of the first seven months of 2009, the Bank of Mexico reduced the benchmark interest rate, a decline the cumulated to 375 basis points from 8.25% at the start of the year.  The sequence of cuts was as follows: 50 bps in January, 25 bps in February, 75 bps in each of the next three months, 50 bps in June and one final reduction of 25 bps last July.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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