Mexican Key One-Day Interbank Rate Left at 4.5%

April 16, 2011

After 375 basis points of reduction within seven months from 8.25% at end-2008, the Bank of Mexico’s policy interest rate has remained at 4.5% since July 2009 and will continue to do so at least until the next Board meeting on May 27.  Subsequent policy meetings are scheduled for July 8 and then August 26.  Friday’s decision to maintain policy as is was expected even though many other Latin American central banks are already in tightening mode, for example those in Brazil, Peru and Chile.  Mexican growth and inflation have been lower than in those economies, and evidence of slack in Mexico’s economy are observed in labor market, credit, and capacity figures.  Consumer price inflation slowed sharply from 3.8% on year in January to 3.0% by March, which matches the central bank medium-term target.  Mexican GDP advanced 5.1% annualized in the final quarter of 2010, aided by more dynamic demand for Mexican exports and faster domestic capital spending.  However, growth in 2011-2 is expected to hover around 4.0%.

Central bank officials nonetheless expected full employment to be reached by mid-2012 and look for a near-term rise of CPI inflation based in part on recent commodity price trends.  A statement posted on the Bank of Mexico website concludes with a hint that interest rate increases will be made eventually, but analysts are not looking for that to happen for a couple of months.

The Governing Board decided to maintain unchanged the objective for the interbank interest rate to a day. However, it will monitor the behavior of inflation expectations, the gap of the product and, with special attention, the prices of grains and other commodities as well as various determinants of inflation that could alert to unexpected pressures and character become widespread on prices. As well, where, in the opinion of the Board, this last eventuality will materialize, the Central Institute adjusted timely monetary stance towards the convergence of its permanent target of 3 percent inflation.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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