Monday, September 21, 2015

Mexico holds rate despite weak economy, low inflation

    Mexico's central bank left its benchmark target for the overnight interest rate unchanged at 3.0 percent although the economy remains weak and inflation is below the bank's objective.
    But the Bank of Mexico also repeated its view from July that action by the U.S. Federal Reserve could impact the exchange rate, inflation expectations and therefore prices in Mexico.
    Mexico's central bank, which in early July changed its schedule for board meetings so they quickly followed those of the Fed, also repeated that it would remain attentive to inflation and inflation expectations, in particular the transfer of exchange rate movements to consumer prices, the monetary stance between the U.S. and Mexico and the degree of slack in the economy so it is ready to taek action when conditions warrant to ensure that inflation converges to the target of 3.0 percent.
    Mexico's inflation rate dropped further to 2.59 percent in August from 2.74 percent in July and the central bank, known as Banxico, said inflation expectations for 2015 had continued to decline to below 3 percent on average while inflation next year is expected to end the year around 3.4 percent.
    Last month the central bank lowered its growth forecast for this year to 1.75 percent to 2.50 percent from a previous 2.0-3.0 percent while it kept its estimate that inflation would remain below its 3.0 percent target for the rest of the year.
    The peso has been depreciating against the U.S. dollar since May 2014 on concern that a rise in U.S. interest rates will trigger an outflow of funds from emerging markets, such as Mexico. But Banxico has been intervening to support the peso and the central bank's governor, Agustin Carstens, has not ruled out the possibility of raising rates at unscheduled board meetings if conditions warrant.
    Since hitting all-time lows around 17.28 to the dollar on Aug. 25, the peso has rebounded to trade around 16.6 to the dollar today but is still down 11.4 percent this year.
   The central bank noted that that the peso had reversed earlier depreciation in recent weeks, adding that the rise in long-term interest rates had been small but it was possible that volatility in international markets will continue.
    Economic activity in many emerging economies continues to weaken, with China facing problems and Brazil's economy deteriorating, the bank said, adding that the balance of risks for the global economy had deteriorated while those for Mexico had remained unchanged.

1 comment:

  1. Unlike Greek Central Bank; Mexico has been open and to the point about the worlds economic problems. Mexico has become a world economic power.