Banco de Mexico governors again keep overnight interest rate at 4½%

By Caroline Salls

Pittsburgh, July 8 - The Board of Governors of Banco de Mexico left its overnight interest rate at 4½% at its meeting on Friday, according to a news release issued by the bank.

The board said the worldwide economy continued to grow in the first months of 2011, although at a more moderate pace.

In Mexico, the board said the pace of economic activity seems to have slowed down, and manufacturing production was affected by the effects of natural disasters on Japan on some automotive assemblers.

However, the board said recent indicators suggest that these effects have been reversed, although internal spending has lost some momentum.

This moderation in growth suggests that the output gap will close at a slower rate than expected, the bank reported.

The board said various indicators of the labor and credit markets, the evolution of installed capacity and the reduced current account deficit continue to show signs of slack. As a result, the board said it does not expect widespread pressures on prices in the economy.

According to the release, annual inflation in Mexico is expected to be within the parameters of the bank's most recent inflation report.

The current levels of inflation are the result of the declining trend in unit costs of labor, the fading impact of last year's tax changes, a favorable exchange rate despite the recent episode of volatility in international financial markets and a significant reduction in agricultural prices.

In the United States, the board said the slowdown in activity has led to a downward revision of growth expectations, as the housing market remains weak and unemployment and household debt levels remain high.

In fact, the board said there is uncertainty as to whether the recovery in the United States will be sustainable after the withdrawal of fiscal and monetary stimuli.

Meanwhile, the board said there has been some progress in fiscal consolidation and reorganization of the financial sector in the European Union's member countries, although there is still great concern about the sustainability of sovereign debt of some peripheral countries and a possible contagion to international financial markets.

The board said it will monitor inflation expectations and product gaps, with special attention on the prices of the grains and other commodities, as well as other inflation factors that could bring unexpected pressures on prices.

If these pressures do materialize, the board said the rate will be adjusted.

The bank has kept the rate steady since July 2009.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.