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 Business News | April 2008 
Mexico Bank Likely to Keep Rate at 7.5% on Inflation Concerns
 Jens Erik Gould - Bloomberg
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| | International Monetary Fund Managing Director Dominique Strauss-Kahn (L) with Mexico's Finance Minister Agustin Carstens listen to World Bank President Robert Zoellick at a joint news conference with during the last day of the spring IMF-World Bank meeting in Washington April 13, 2008. (Reuters/Yuri Gripas) | | |
Mexico's central bank will probably keep its benchmark interest rate unchanged for a sixth consecutive month as policy makers weigh above-target inflation against their concern that the economy is slowing.
The five-member board, led by Governor Guillermo Ortiz, will keep the rate at 7.50 percent at today's meeting, according to 25 of 27 economists surveyed by Bloomberg. The other two analysts expect a quarter-point cut.
The central bank may be hesitant to cut rates in an effort to spur economic growth because cheaper borrowing could boost consumer prices. Mexico is seeking to temper the highest inflation in 17 months while maintaining growth in an economy that's especially vulnerable to a slump in the U.S., the destination for 80 percent of its exports.
"The inflation scenario is adverse," said Juan Trevino, chief economist for HSBC Holdings Plc in Mexico City. "We don't see a justification for a cut during the whole year."
Mexico's consumer prices rose 4.25 percent in March from the same month a year earlier, led by food, clothing and housing. Monthly inflation in March more than doubled to 0.72 percent from 0.30 percent in February.
Mexico's inflation rate may climb as high as 4.50 percent, above the central bank's target range of no higher than 4 percent, in the second and third quarters, according to the bank's estimates.
Ortiz said April 4 that Mexico is in a tougher predicament than other emerging- market countries because new corporate taxes could quicken inflation in 2008 and because Mexico is especially susceptible to a U.S. economic downturn.
Controlling Inflation
He added that keeping inflation under control would help boost economic growth in the medium term.
The Mexican government has said that it is better prepared than ever to withstand an economic slump in the U.S. because its exports and economy are more diversified than during previous slumps.
Mexico's central bank in January cut its economic growth forecast for 2008 by half a percentage point, to a range of 2.75 percent to 3.25 percent. Mexico's Finance Ministry expects economic expansion to slow to 2.8 percent this year, from 3.3 percent in 2007.
President Felipe Calderon announced last month a 60 billion-peso ($5.6 billion) economic stimulus package, including tax cuts, cheaper electricity and more spending by the national oil company.
To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9(at)bloomberg.net |
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