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 Business News | December 2007 
Mexico Holds Rate Steady as US Downturn Looms
 Noel Randewich - Reuters
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Mexico City - Mexico held interest rates steady on Friday, putting aside inflation fears as concern over a possible U.S. slowdown weighed against any immediate tightening.
In its monthly monetary policy review, the central bank kept its overnight lending rate at 7.50 percent. It repeated comments from its November statement that it would stay vigilant to keep 12-month inflation on track to reach its goal of 3 percent by end-2009.
Twelve-month inflation, fueled by higher prices for fruit and vegetables, rose to 3.93 percent in November from 3.74 percent in October, the bank said.
Rising prices for dairy and grains have stoked inflation across Latin America and in many parts of the world.
Fast-developing economies such as India and China have raised global demand for food commodities while increasing amounts of grains are being diverted for use in biofuels.
The Banco de Mexico sees an inflation rate of over 4 percent as unacceptable and has a long-term target of 3 percent.
It raised rates in October by 25 basis points to 7.50 percent to head off a potential upward spike in inflation.
Since then, the bank has held interest rates steady, betting the threat of inflation from high world food prices would be tempered by the slower U.S. economic expansion.
The U.S. economy grew nearly 5 percent on an annual basis in the third quarter, but it now appears to be losing steam as the downturn in the housing market deepens. Many analysts are warning of a growing risk of recession and expect the U.S. Federal Reserve to cut interest rates next week.
Mexico relies heavily on trade with the United States, where it sends goods like automobiles, clothing and farm produce. Slower U.S. growth would cool Mexico's economy.
The Mexican peso was stable at 10.818 to the dollar.
All of the experts consulted by Reuters had predicted the central bank would again keep rates steady on Friday.
Consumer prices (MXINFL=ECI) rose 0.71 percent in November, less than expected, the central bank reported.
Closely watched core inflation (MXCPIX=ECI), which strips out some volatile food and energy prices, was 0.35 percent in November.
The central bank said in its most recent quarterly report that inflation would hover above 4 percent for most of next year before falling toward its 3 percent goal by the end of 2009.
Mexico avoided a major inflation spike this year by opening its borders to corn imports when prices for the staple food tortilla hit record highs, President Felipe Calderon said on Tuesday, adding he would follow the same policies in 2008. |
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