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

By Caroline Salls

Pittsburgh, March 16 - 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 bank said growth expectations seemed to stabilize in the first part of 2012, albeit with differences between regions, after showing deterioration for the world economy and international financial market confidence in the second part of 2011.

In Europe, the bank said measurements adopted by the European Central Bank and advances in the plans of fiscal consolidation have contributed to better functioning interbank markets and sovereign debt.

Nevertheless, the board said a negative feedback still exists between the delveraging of the banks and the economic activity, which in turn makes the necessary process of fiscal consolidation difficult in the region.

The eurozone is expected to have entered into recession in the first trimester of 2012, the release said.

In the United States, the bank said some indicators of production and employment have improved recently, although total demand continues to show signs of weakness because of prevailing structural problems, including uncertainty arising from a lack of political agreements for the consolidation of public finances.

As a result, the board said the economy is expected to slack for a prolonged period.

The bank said that a reduction in growth rate continued in the emerging markets.

Inflation is expected to be positioned below 2011 levels in the majority of the countries as a result of a slowdown in economic activity and a decline in the international prices of raw materials in the second half of last year, according to the release.

Despite these factors, the board said the recent increase in the price of oil derived from the conflicts in the Middle East poses an element of risk for economic activity, including inflation at the global level.

In Mexico, the bank said production has proved resistant to the damage that the external environment showed in the second half of 2011, even when some indicators have shown a moderate slowdown.

While the industrial production and retail sales recently picked up, this has not been the case with non-oil exports and private investment, the board said in the release. As a result, the output gap widened slightly in the last quarter of 2011.

The bank said the perception in the last few weeks is there has been improvement in the balance of risks to economic growth, mainly because of improvement in growth prospects in the United States, as well as a reduced probability of a catastrophic financial event at the global level.

The bank said underlying inflation is still at levels close to 3%.

The board said it will monitor the prospects for the growth of the Mexican economy, inflation and the financial markets, as well as the behavior of all of the factors of inflation that might indicate generalized pressures on prices.

The bank has kept the rate steady since July 2009.

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