Bank of Mexico’s Benchmark Rate Stays at Cyclical Low of 4.5%

October 14, 2011

The Bank of Mexico’s key interest rate was slashed during the Great Recession from 8.25% to 4.5% and has remained at that low since July 2009.  A statement on the central bank’s web site notes that global economic prospects have darkened and revises Mexico’s outlook for growth downward, while keeping such positive.  Aside from a slower reduction of Mexico’s output gap, officials are sanguine about inflation for several other reasons: the downward trend in the unit costs of labor, the fading of the impact of tax changes in the last year and a significant reduction in agricultural prices.  Although the peso, like many emerging market currencies has depreciated, “inflation expectations have practically not been affected.”  With growth and price risks skewed more to the downside, officials are confident that inflation will be consistent with a target of 3%.  But they will attentively watch world financial conditions weighing the disinflationary risks of weaker growth with the inflationary potential if the peso declines more quickly.

Copyright 2011, Larry Greenberg.  No secondary distribution without express permission.



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