Mexican Monetary Policy On Hold Since July 2009

April 16, 2010

Bank of Mexico officials, who previously cut their benchmark interest rate in seven consecutive steps from 8.25% at end-2008 to 4.5% after last July’s meeting, left their accommodative policy on hold at that level as analysts had expected.  A released statement, whose English translation can be read by clicking here, observed that CPI inflation averaged 4.75% last quarter.  That is near the upper boundary of acceptance, above the key interest rate level, and well above the target inflation rate of 3% by end-2011.  CPI inflation is projected to decelerate because the economy is running well below capacity, aggregate demand pressures are not observed, wage settlements remain moderate, and expected inflation, though above 3%, has not risen.  While exports of manufactured goods are recovering nicely especially to the United States, personal consumption is weak, and investment hasn’t begun to rebound.  Real GDP expanded 8.4% at an annualized rate last quarter but was still 2.3% lower than in the final quarter of 2008.  The statement observes that many advanced nation central banks are unlikely to raise interest rates “for some time.”  While pledging a willingness to act if inflation trends suggest that the CPI will exceed target by late 2011, the fairly dovish statement implies that monetary policy in Mexico will start to tighten later than in most Asian central banks and even after several other Latin American central banks.

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



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