Bloomberg News

Mexico Central Bank Signals Concern Over Growth Outlook

January 23, 2012

(Updates with analyst comment in the fourth paragraph.)

Jan. 20 (Bloomberg) -- Mexico’s central bank said the outlook for inflation is favorable after economic growth began to slow, signaling its next step after leaving interest rates unchanged for a 24th meeting may be a cut.

The bank’s board, led by Governor Agustin Carstens, kept the overnight rate at a record low of 4.5 percent today, in line with the forecast of all 20 economists surveyed by Bloomberg. It was the first time since August that analysts were unanimous in their forecasts.

Inflation has accelerated for three months in a row following a region-leading slump in the peso against the dollar last year. While the weaker peso has fueled increases in the cost of some tradable goods, there is no evidence of that pushing up prices of other goods and services and the increase in the inflation rate is likely to be “transitory,” the central bank said in a statement accompanying today’s decision.

“The majority of the board members are inclined to eventually cut the overnight rate, even if the policy bias is, for the record, neutral,” Credit Suisse Group AG said in a note to investors. “We think that this will be more evident in the monetary policy minutes due February 3.”

Labor and credit markets still show slack, with the output gap narrowing more slowly than previously forecast and some components of domestic demand weakening in the fourth quarter, the bank said.

The bank stands ready to lower rates if the European debt crisis deepens, depressing domestic growth and consumer prices, it said.


“The general tone of the communique is the same as the last meeting, but there is a hint of dovishness,” Nomura Securities Inc. said in a note to investors. “Banxico will keep a lax monetary policy for a prolonged period of time.”

The yield on benchmark peso-denominated bonds due in 2024 slid five basis points, or 0.05 percentage point, to 6.27 percent at 1:14 p.m. local time, according to data compiled by Bloomberg. The price of the securities rose 0.48 centavos to 132.90 centavos per peso. The yield is the lowest since Sept. 8.

“We maintain our expectation of a rate cut, but instead of a 50 basis point call, we now believe it will be of 25 basis points, which will bring the Fondeo rate to 4.25% in March,” Banco Santander SA economist Gabriel Lozano wrote to clients.

Weaker Peso

Mexico’s peso has weakened 12 percent over the past six months, the worst performer among major Latin American currencies, pushing up import costs. The inflation rate climbed to 3.82 percent in December from 3.14 percent three months earlier. A record drought has also fueled farm prices.

The economy will have “moderate growth” of an estimated 3.5 percent this year, Carstens said Jan. 17, down from about 4 percent in 2011.

Growth eased to 3.68 percent in October from 4.52 percent the month before, while industrial production increased a monthly 0.1 percent in November, compared with the median forecast among economists polled by Bloomberg of 0.6 percent.

Mexico’s monetary policy has been consistent with a downward inflation trend and policy makers have felt comfortable with their 4.5 percent benchmark interest rate, central bank Deputy Governor Manuel Ramos Francia said on Jan. 12. The bank targets 3 percent inflation. It next meets to decide on rates March 16.

--With assistance from Jose Enrique Arrioja and Jonathan J. Levin in Mexico City and Ben Bain in New York. Editors: Philip Sanders, Bill Faries

To contact the reporter on this story: Nacha Cattan in Mexico City at

To contact the editor responsible for this story: Joshua Goodman at

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