| | |  Business News | January 2009 
Mexico Central Bank Cuts Lending Rate to 7.75 Pct
 Julie Watson - Associated Press
go to original
| | President Felipe Calderon last week pledged 2 billion pesos in spending to prevent layoffs, slash energy costs and spur growth. | |
Mexico City – Mexico's central bank cut interest rates for the first time since 2006 on Friday to boost the country's slowing economy as it inches toward recession.
The bank lowered its benchmark lending rate 50 basis points to 7.75 percent. It had resisted changing its rate since August in an effort to balance slowing growth and rising inflation, which reached a seven-year high of 6.5 percent in 2008.
Price gains should start slowing this month, though, as the economic downturn deepens and Mexico's government freezes gasoline prices and slashes electricity and natural gas costs, the bank said in a statement announcing its decision.
Growth slowed to a projected 1.8 percent in 2008, and central bank president Guillermo Ortiz has suggested it could be negative this year.
The bank said the U.S. slowdown is having a "very negative" impact on the Mexican economy.
Mexico, which sends 80 percent of its exports to the United States, has been pummeled by the U.S. recession, with sales of oil, manufactured goods and vehicles falling. A 40 percent decline in the peso since August has meanwhile boosted import costs, fueling inflation.
President Felipe Calderon last week pledged 2 billion pesos ($150 million) in spending to prevent layoffs, slash energy costs and spur growth.
"The monetary relaxation is going to be a positive signal for markets and it's going to let the economy mitigate the negative impact from the U.S. recession," said Alfredo Coutino, senior economist for Latin America at Moody's Economy.com.
Still, "there is a probability that the combination of the government's fiscal stimulus with the bank's monetary relaxation are not going to be enough for the economy to avoid the recession," Coutino added.
Treasury Secretary Agustin Carstens has said the economy will contract in the first half of 2009 and end the year with zero growth. He predicted inflation would slow to 5.4 percent for the year.
The bank forecast inflation to drop to 4 percent this year and 3 percent by the end of 2010.
While the U.S. recession will hurt its neighbor, officials have said that Mexico is in better shape to weather the storm than in years past. The central bank has accumulated more than $30 billion in foreign currency reserves since Mexico's own 1995 financial crisis, allowing it to auction off at least $15 billion to prop up the battered peso last year.
Coutino warned the peso could slide to a record low 15 to the U.S. dollar before stabilizing around 13 to the dollar later this year.
The peso was trading at 13.9 to the dollar late Friday morning, strengthening slightly on the rate cut. Mexico's benchmark IPC stock index fell 0.3 percent to 20,215.
Central banks in the U.S. and Europe have slashed rates in recent months, and policymakers in Colombia and Chile became the first in Latin America to follow suit in December.
Central banks across Latin America will likely continue cutting rates throughout 2009 as the world economic crisis slows exports and growth, said Lisa M. Schineller, a Latin America economist at Standard & Poor's in New York.
She doubted the rate cut would keep Mexico's economy from slipping into recession. |
|
| |
Vallarta Weddings
Tell a Friend
Site Map
Print this Page
Email Us