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Mexico Central Bank Holds Interest Rate Steady
 Jason Lange & Patrick Rucker - Reuters
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January 15, 2010
 |  | The bank said the economy's weakness will dull the inflationary effects of recent tax increases and higher government-set prices. |  | | |
Mexico City - Mexico left overnight interest rates at a six-year low on Friday to help the economy recover from a recession, saying weak economic growth would dampen the effects of tax increases on inflation.
The Mexican central bank left its benchmark interest rate unchanged at 4.50 percent, as was expected unanimously in a Reuters poll.
"The levels of activity will be below GDP's potential during the present year," the central bank said in a statement.
The bank said the economy's weakness will dull the inflationary effects of recent tax increases and higher government-set prices.
"The gap in the economy will help weaken the transfer of these changes (in taxes) to consumer prices," the bank said, saying the effect of tax changes would dissipate throughout 2011.
A deep recession ended in Mexico in the third quarter of last year but it could be years before the economy fully recovers.
The decision to leave rates steady was the first for the central bank under the stewardship of Agustin Carstens, who took over the institution this month and has said the bank will not raise rates anytime soon.
Gross domestic product in Mexico is seen expanding about 3 percent in 2010 after plunging around 7 percent last year, probably its worst decline since 1932.
(Editing by Theodore d'Afflisio)
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