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 Business News | November 2007 
Bank of Mexico May Hold Rate After Surprise Increase Last Month
 Patrick Harrington - Bloomberg
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Mexico's central bank will probably keep its benchmark interest rate unchanged today as policy makers gauge whether their surprise increase last month will be enough to head off inflation stoked by rising food costs.
The five-member board led by Governor Guillermo Ortiz will keep the rate at 7.50 percent, according to 21 of 22 economists surveyed by Bloomberg News. One economist expects the bank to raise rates a quarter percentage point.
The Bank of Mexico is unlikely to alter monetary policy for the rest of the year as it determines whether prices are falling within new inflation targets set last month. Policy makers raised the benchmark rate a quarter point in October, the second surprise increase this year, and pushed back their goal of reaching 3 percent inflation by one year until the end of 2009.
"Mexico's central bank is in a waiting mode," said Mario Correa, an economist in Mexico City at Scotiabank Inverlat, the local unit of Canada's Bank of Nova Scotia.
The bank surprised 22 of 29 economists last month by raising the benchmark rate. The central bank also dropped its "restrictive bias" in October, meaning policy makers are as likely to lower rates as they are to raise them.
The bank now estimates that the country's inflation rate for the rest of 2007 will be 3.5 percent to 4 percent. The previous estimate was 3.25 percent to 3.75 percent. The bank said consumer prices may climb 4 percent to 4.5 percent during the second and third quarters of 2008.
`Sufficiently Restrictive'
"Monetary policy is sufficiently restrictive for the Bank of Mexico to reach the 3 percent target in the horizon that that policy makers have outlined," said Salvador Moreno, chief economist at ING Groep NV's Mexican unit. "They will hold rates this month."
A report yesterday showed inflation accelerated more than economists expected in the first half of November, while remaining within the bank's target range. Consumer prices climbed 0.64 percent in the month's first 15 days, for an annual rate of 3.98 percent, on higher costs for limes, peppers and other food.
Central bankers have previously signaled that they are hesitant to raise interest rates while the outlook for U.S. growth is unclear. Policy makers cited a "prevailing uncertainty" about global economic growth for not raising rates in August and September.
The U.S. buys about 80 percent of Mexico's exports.
Economic Growth
Mexico's economy expanded 3.7 percent in the third quarter, short of the Finance Ministry's 4 percent estimate. Finance Minister Agustin Carstens says Mexico's economy is likely to grow 3.7 percent next year.
The International Monetary Fund estimates that slowing U.S. demand will cause Mexico's economic growth to slow to 3 percent in 2008.
"The impact of a recession on the financial markets could affect the thinking of the Bank of Mexico," said Delia Paredes, senior economist with the Mexican unit of Banco Santander Central Hispano SA. "The situation in the U.S. is difficult."
To contact the reporter on this story: Patrick Harrington in Mexico City at pharrington8@bloomberg.net |
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