Mexico's central bank sharply raised its 2008 inflation forecast on Wednesday, saying prices for food like wheat and tomatoes were rising at an uncomfortably quick pace.
That could keep pressure on policy makers to keep borrowing costs high despite a slowdown in the economy that the central bank said would be worse than previously expected.
However, central bank governor Guillermo Ortiz said he thinks a current spike in inflation will be short-lived because a worldwide surge in food costs likely won't spread to other prices in Mexico.
"We are certainly not comfortable with current levels of inflation," he said, but added: "The expectation is that ... prices and wages will not be contaminated."
Some investors over the past week have been betting the bank's next move will be to hike rates, though interest rate futures TII: on Wednesday showed market players were paring those bets after the bank released its inflation report.
Policy makers on April 18 held the benchmark overnight rate at 7.50 percent for the sixth straight month. Central banks lower borrowing costs to stimulate economic growth and raise them to keep economies from overheating.
Ortiz said Mexico's economy will grow between 2.40 and 2.90 percent, down from the bank's previous estimate of 2.75 to 3.25 percent.
At the same time, the bank said average inflation would rise to as high as 5 percent during the second and third quarters of this year, well above the 4 percent level the bank says it can tolerate.
The bank said inflation will peak toward the fourth quarter and it retained its view that average inflation could fall to as low as 3 percent by the third quarter of 2009.
The bank repeated previous comments that a combination of low growth and high inflation was making it hard to decide at what level interest rates should be set.
"Monetary policy is currently facing a complicated period," the bank said in its report on first-quarter inflation.
That could keep pressure on policy makers to keep borrowing costs high despite a slowdown in the economy that the central bank said would be worse than previously expected.
However, central bank governor Guillermo Ortiz said he thinks a current spike in inflation will be short-lived because a worldwide surge in food costs likely won't spread to other prices in Mexico.
"We are certainly not comfortable with current levels of inflation," he said, but added: "The expectation is that ... prices and wages will not be contaminated."
Some investors over the past week have been betting the bank's next move will be to hike rates, though interest rate futures TII: on Wednesday showed market players were paring those bets after the bank released its inflation report.
Policy makers on April 18 held the benchmark overnight rate at 7.50 percent for the sixth straight month. Central banks lower borrowing costs to stimulate economic growth and raise them to keep economies from overheating.
Ortiz said Mexico's economy will grow between 2.40 and 2.90 percent, down from the bank's previous estimate of 2.75 to 3.25 percent.
At the same time, the bank said average inflation would rise to as high as 5 percent during the second and third quarters of this year, well above the 4 percent level the bank says it can tolerate.
The bank said inflation will peak toward the fourth quarter and it retained its view that average inflation could fall to as low as 3 percent by the third quarter of 2009.
The bank repeated previous comments that a combination of low growth and high inflation was making it hard to decide at what level interest rates should be set.
"Monetary policy is currently facing a complicated period," the bank said in its report on first-quarter inflation.
Posts
No comments:
Post a Comment