Bank of Mexico Monetary Policy Unchanged

January 23, 2012

Policymakers at Mexico’s central bank last Friday decided to keep its key interest rate at 4.5%, the level since a cut in July 2009 culminated 375 basis points of easing implemented that year.  A statement from officials projects that inflation, though currently somewhat above the 3% target, will settled into that goal.  Risks to growth have deteriorated since the last policy meeting in early December, while those surrounding the inflation forecast are considered neutral.  Peso depreciation since mid-2011 has had not dislodged inflation expectations.  Continuing disinflationary factors are "the continuing slack in the economy, a downward trend in the unit costs of labor, the fading of the effects of the tax changes for 2010, and higher levels of competition in some sectors of the economy. The recent rebound in inflation was the result of phenomena which primarily reflect changes in relative prices in the economy."  Mexico’s output gap, that is the percent of unutilized productive resources, has been closing at a slower pace than officials had assumed, and the new statement hints that policymakers are prepared to ease policy if global economic prospects take a further major turn for the worse.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.