Bloomberg News

Banxico Highlights Rate Cut Option Amid Loose Global Policy

May 11, 2012

Mexican policy makers were unanimous in their decision to keep the key interest rate unchanged last month, while signaling willingness to cut should global monetary policy remain loose and European financial markets stabilize.

The board, led by Governor Agustin Carstens, kept the overnight rate at 4.5 percent on April 27 for a 26th consecutive meeting.

The majority of policy makers said “that the posture of monetary policy in Mexico is being tightened more than desired due to the actions of other countries,” according to the minutes of the meeting published today on the bank’s website. “If an improvement in the global financial markets’ stability is achieved, particularly in Europe, it could be viable to relax monetary policy.”

Mexico’s annual inflation slowed for a third consecutive month in April as a record drought in the north of the country eased, reducing pressure on food costs. Economists surveyed by the central bank this month cut their 2012 inflation forecast for a second consecutive month.

The lender said the risks to inflation are unchanged, while the likelihood of an economic slowdown has abated. A weaker monetary posture would still be compatible with the inflation target, it said.

“The minutes were as dovish as the last minutes,” Gabriel Casillas, chief Mexico economist at JPMorgan Chase & Co., said in a phone interview from Mexico City. “The main message is rate cuts are contingent on a better global financial environment. In order to forecast a rate cut for Banxico now, you have to forecast when the situation in Europe is going to be fixed, and this is a more tricky projection.”

Inflation Slows

The peso traded at 13.4922 per U.S. dollar at 10:50 a.m. Mexico City time, up 0.2 percent from 13.5140 yesterday.

The inflation rate fell to a six-month low of 3.41 percent in April from 3.73 percent the month before, the national statistics agency said on May 9.

Even before that, economists had cut their year-end inflation forecast to an average 3.68 percent this month from 3.78 percent in April and 3.88 percent in March, according to a monthly survey by the central bank.

The bank said the prospects for economic growth have improved as exports pick up, according to notes accompanying its April 27 decision.

Minority View

Some central bank policy makers disagreed that Mexico’s monetary policy is too tight, according to the minutes. One of the five members of the committee said that peso weakness has relaxed the monetary policy. One member also stressed the need for Mexico to slow inflation to its 3 percent target as soon as possible.

The economy is likely to expand at the top end of the central bank’s 3 percent to 4 percent target range after data beat forecasts this year, Carstens said in a March 23 interview.

Consumer confidence soared to a four-year high in April and the trade surplus reached $1.6 billion in March, the highest monthly figure since at least 1985. Economic growth accelerated to 6.24 percent in February, according to the national statistics agency’s global economic indicator, more than the 5.5 percent median forecast of 15 analysts surveyed by Bloomberg.

The peso has strengthened 3.2 percent this year, the third- best performance of 16 major currencies tracked by Bloomberg after the British pound and Singapore Dollar.

The central bank next meets on June 8 to decide on rates.

To contact the reporters on this story: Eric Martin in Washington at; Nacha Cattan in Mexico City at

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

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