Bloomberg News

Mexico Leaves Rates on Hold as Outlook for Growth Improves

April 27, 2012

Mexico’s central bank kept its benchmark interest rate unchanged at a record low for the 26th consecutive meeting after inflation slowed and the outlook for economic growth improved.

The bank’s board, led by Governor Agustin Carstens, left the overnight lending rate at a record low of 4.5 percent today, matching the forecast of 19 of 22 economists surveyed by Bloomberg. Two analysts forecast a quarter-point cut and one expected a half-point reduction.

Economic growth accelerated to 6.24 percent in February and the prospects for future expansion have improved as exports pick up, the central bank said in notes accompanying today’s decision. If the economy keeps improving, pressures on the consumer price index will eventually increase, said Sergio Luna, an economist at Citigroup Inc. (C:US)’s Banamex unit

“The space to cut rates has closed,” said Luna, who had forecast a half-point rate cut for today. “The economy will have a good growth rate, inflation will remain within a reasonable range, without major problems.” Luna said Banamex now forecasts a rate increase for the first quarter of 2013.

The peso rose 1.3 percent to 12.9991 to the dollar as of 11:13 a.m. in Mexico City. Yields on fixed-rate bonds due December 2013 tumbled 36 basis points, or 0.36 percentage point, in the four weeks through yesterday on speculation policy makers would cut the target lending rate. The yield jumped 10 basis points today to 4.54 percent as of 11:20 a.m., according to data compiled by Bloomberg.

Balance of Risks

“The balance of risks to inflation have remained similar to what was reported in the last monetary policy decision,” the central bank said, while there is “an improvement in the balance of risks for economic growth.”

The bank, known as Banxico, reiterated previous statements that it may reduce interest rates if monetary policy in developed and developing nations remains loose. It also said the bank remained alert to any pick-up in inflation.

Consumer prices dropped 0.42 percent in early April, beating 13 out of 14 economists’ estimates in a Bloomberg survey. Annual inflation slowed to 3.73 percent in March from 3.87 percent the month before and 4.05 percent in January. The target range for inflation is 3 percent, plus or minus one percentage point.

“Inflation expectations are pretty well anchored,” said Deputy Finance Minister Gerardo Rodriguez in an April 20 interview in Washington. “There are no existent imminent types of concerns on the inflationary front,” he said.

Faster Growth

Mexico posted a preliminary trade surplus of $1.6 billion for March, topping all 10 analyst estimates in a Bloomberg survey, the statistics agency reported today.

February’s economic growth also exceeded all 15 forecasts in a Bloomberg survey and was the fastest pace since August 2010.

Gross domestic product will expand about 3.5 percent this year after it grew 3.9 percent in 2011, according to government forecasts. Growth may have “positive surprises” after recent production and consumption data beat forecasts, Finance Minister Jose Antonio Meade said in a March 8 interview.

Still, mixed economic news out of the U.S. means growth may not continue at the current pace, said Alonso Cervera, a Mexico City-based economist at Credit Suisse Group AG (CSGN) who forecasts the central bank will begin to cut rates by June. The U.S. accounts for 80 percent of Mexico’s exports.

The U.S. economy expanded less than forecast in the first quarter as the biggest gain in consumer spending in more than a year failed to overcome a diminished contribution from business inventories.

Gross domestic product, the value of all goods and services produced in the U.S., rose at a 2.2 percent annual rate after a 3 percent pace a quarter earlier, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 2.5 percent rise.

“Banxico appears generally comfortable with inflation in the economy,” Bret Rosen, a Latin America strategist at Standard Chartered Bank in New York, said in a research note today. The central bank’s notes on the decision were “broadly balanced.”

To contact the reporter on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.


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