Mexico's central bank kept its benchmark interest rate unchanged for a seventh month and added language to its policy statement that indicates heightened unease about the outlook for inflation.
"Inflation pressures will rise considerably, a growing reason for concern,'' the bank said in a statement today announcing the decision to keep rates at 7.5 percent.
The comments indicate that rising consumer prices will prevent the bank from lowering the benchmark rate and may force an increase later this year, said Gray Newman, chief Latin America economist at Morgan Stanley in New York.
"While I still don't think Banxico wants to raise rates, they seem to be preparing the market that the risks to a hike are growing,'' Newman said.
The decision by Banco de Mexico's five-member board to keep the rate steady matched the forecast of all 21 economists surveyed by Bloomberg.
Mexico's annual inflation accelerated the most in almost three years last month to 4.55 percent, led by costs for housing and foods such as tomatoes and chicken. In April, the bank raised its 2008 inflation forecast, saying prices will climb 4.5 percent to 5 percent on an annual basis in the second and third quarters, and as much as 4.75 percent in the fourth quarter.
The bank targets inflation of no more than 4 percent.
Peso Record
Mexico's peso strengthened to its highest in almost five years on speculation central bankers will raise interest rates later this year to stem inflation.
The peso advanced 0.5 percent to 10.3969 per dollar at 4:47 p.m. New York time. Earlier the currency touched 10.3912, the strongest since July 2003.
Rafael Camarena, an economist in Mexico City at Banco Santander SA, the biggest trader of peso-denominated bonds, estimates central bankers will increase the key rate to 7.75 percent at their June 20 meeting. Policy makers last raised borrowing costs, by a quarter-percentage-point, in October.
The risk of contagion from the U.S. economic downturn has also increased, the bank said in its statement today. Banco de Mexico last month cut its economic growth outlook for this year to no more than 2.9 percent. The central bank expects first- quarter growth was 3 percent.
Alfredo Thorne, head of Latin America research for JPMorgan Chase & Co. in Mexico City, said the bank's statement today was balanced and didn't give a clear signal as to monetary policy in the coming months.
"I don't think they want to push the market into the dovish camp,'' Thorne said. "They would like the market to come to a midpoint.''
Slump in U.S.
Mexico is less affected by a slumping U.S. economy than it was during the U.S. recession of 2001 because of growing exports to other countries, greater domestic consumption and increased investment and public spending, Deputy Finance Minister Alejandro Werner said May 8.
The bank's board may believe increasing rates won't significantly affect inflation because consumer prices are mostly rising due to global food and energy costs, said Rodolfo Navarrete, head of research at brokerage Vector Casa de Bolsa in Mexico City.
"It looks to me like there's no agreement within the Banco de Mexico on which direction to take,'' Navarrete said. "Some are probably saying it's time to act now. Others are advising to wait.''
The median forecast of 25 economists polled by Citigroup Inc.'s Banamex unit in Mexico City on May 6 was for the central bank to not change its benchmark rate until 2009.
"Inflation pressures will rise considerably, a growing reason for concern,'' the bank said in a statement today announcing the decision to keep rates at 7.5 percent.
The comments indicate that rising consumer prices will prevent the bank from lowering the benchmark rate and may force an increase later this year, said Gray Newman, chief Latin America economist at Morgan Stanley in New York.
"While I still don't think Banxico wants to raise rates, they seem to be preparing the market that the risks to a hike are growing,'' Newman said.
The decision by Banco de Mexico's five-member board to keep the rate steady matched the forecast of all 21 economists surveyed by Bloomberg.
Mexico's annual inflation accelerated the most in almost three years last month to 4.55 percent, led by costs for housing and foods such as tomatoes and chicken. In April, the bank raised its 2008 inflation forecast, saying prices will climb 4.5 percent to 5 percent on an annual basis in the second and third quarters, and as much as 4.75 percent in the fourth quarter.
The bank targets inflation of no more than 4 percent.
Peso Record
Mexico's peso strengthened to its highest in almost five years on speculation central bankers will raise interest rates later this year to stem inflation.
The peso advanced 0.5 percent to 10.3969 per dollar at 4:47 p.m. New York time. Earlier the currency touched 10.3912, the strongest since July 2003.
Rafael Camarena, an economist in Mexico City at Banco Santander SA, the biggest trader of peso-denominated bonds, estimates central bankers will increase the key rate to 7.75 percent at their June 20 meeting. Policy makers last raised borrowing costs, by a quarter-percentage-point, in October.
The risk of contagion from the U.S. economic downturn has also increased, the bank said in its statement today. Banco de Mexico last month cut its economic growth outlook for this year to no more than 2.9 percent. The central bank expects first- quarter growth was 3 percent.
Alfredo Thorne, head of Latin America research for JPMorgan Chase & Co. in Mexico City, said the bank's statement today was balanced and didn't give a clear signal as to monetary policy in the coming months.
"I don't think they want to push the market into the dovish camp,'' Thorne said. "They would like the market to come to a midpoint.''
Slump in U.S.
Mexico is less affected by a slumping U.S. economy than it was during the U.S. recession of 2001 because of growing exports to other countries, greater domestic consumption and increased investment and public spending, Deputy Finance Minister Alejandro Werner said May 8.
The bank's board may believe increasing rates won't significantly affect inflation because consumer prices are mostly rising due to global food and energy costs, said Rodolfo Navarrete, head of research at brokerage Vector Casa de Bolsa in Mexico City.
"It looks to me like there's no agreement within the Banco de Mexico on which direction to take,'' Navarrete said. "Some are probably saying it's time to act now. Others are advising to wait.''
The median forecast of 25 economists polled by Citigroup Inc.'s Banamex unit in Mexico City on May 6 was for the central bank to not change its benchmark rate until 2009.
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1 comment:
Mexico is in better shape than the us.
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