Bloomberg News

Banxico Says Alert to Slowing Growth, Global Monetary Policies

June 21, 2013

Mexico’s central bank will be alert to how global monetary policy, particularly in the U.S., affects inflation, according to the minutes of this month’s meeting.

The central bank’s board members were unanimous in their decision to leave the benchmark rate at a record-low 4 percent on June 7 after cutting borrowing costs in March for the first time since 2009, the minutes published today show. Inflation will slow slightly in June and more quickly starting in July, policy makers said.

Economists no longer expect the central bank to cut interest rates this year, according to a survey yesterday by Citigroup Inc.’s Banamex unit, as inflation remains above the target range and the peso weakens. At the same time, analysts have reduced forecasts for growth in Latin America’s second-largest economy to below 3 percent after industrial production contracted in the first quarter and government spending slowed.

The central bank “will be attentive to the implications on the inflation outlook of economic activity and Mexico’s relative monetary policy with respect to the rest of advanced nations, particularly the United States,” policy makers said. “It will be watchful that the recent changes in relative prices don’t have second-order effects on the process of price formation in the economy.”

Prices rose 4.63 percent in May from the year earlier, above the central bank’s target range of 2 percent to 4 percent for the third consecutive month.

Peso Slump

The peso was little changed at 13.3698 per dollar at 9:42 a.m. in Mexico City and has fallen 7.7 percent in the past month, the second-worst performer among major currencies tracked by Bloomberg. The peso fell to an almost 11-month low yesterday after Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank may phase out one of the most aggressive easing strategies in its history, damping fund flows to emerging markets.

Yields on six-month Mexican interest-rate swaps climbed five basis points yesterday to 4.40 percent, indicating traders see no chance the bank will lower rates by December. As recently as May 21, the likelihood was about 68 percent.

Economists now say Banxico’s next rate move will be a quarter-point increase in June 2014, according to the median estimate in yesterday’s Banamex survey. In the previous biweekly poll, they estimated a half-point cut in September of this year.

The survey also showed economists slashed their 2013 growth expectations to 2.7 percent from 3 percent, less than the government’s 3.1 percent forecast. The government cut its own forecast last month from 3.5 percent after expansion slowed more than expected to 0.8 percent in the first quarter as industrial output contracted.

Economic growth will quicken as the government increases spending in the second half of the year, Finance Minister Luis Videgaray said in a June 17 interview. Expansion was at the slowest pace in more than three years in the first quarter after spending was contained when a new government took over in December, Videgaray said. President Enrique Pena Nieto took office on Dec. 1.

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

To contact the editor responsible for this story: Andre Soliani at

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