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

By Caroline Salls

Pittsburgh, Jan. 18 - 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.

However, the board said it may be advisable to reduce interest rates to adjust for lower economic growth and lower inflation.

The governors said the global economy continues to show signs of weakness.

The bank said economic growth in the United States is expected to be weaker in 2013 as compared to last year.

Additionally, despite the agreement to reduce the magnitude of the fiscal adjustment in 2013, the bank said uncertainty persists regarding the approval limit for public sector borrowing and spending cuts resulting from the tax discussion in the United States.

In the euro area, while the pressures in the interbank markets and sovereign debt have declined, the governors said operations still depend on an extraordinary degree of support from official institutions. As a result, the bank said growth prospects for 2013 remain unfavorable.

The board said the growth rate of industrial production has slowed in most of the major emerging economies.

In this context, the bank said there has been a decline in risk premiums in financial markets. However, the governors said they cannot rule out a new episode of volatility.

In an environment of slower economic growth, with downward trajectories in international prices of raw materials and anticipated inflation levels lower than the previous year, the bank said monetary policies in most advanced economies and several emerging economies remains very accommodating.

According to the release, the growth rate of economic activity in Mexico has moderated.

The bank said exports continue to show slower growth compared to the first half of 2012. The governors said this has influenced the behavior of production activities and services that are more related to foreign trade.

Specifically, the board said the growth of external demand and some components of domestic spending have fallen. In this environment, the output gap has remained around zero.

The bank said downside risks remain for the Mexican economy as a reflection of macroeconomic imbalances that prevail in the major developed economies. However, the board said progress in structural reforms in Mexico would grow at higher rates without giving rise to inflationary pressures.

In recent months, the board said headline inflation in Mexico continued to decline significantly, closing 2012 below 4%, as expected by the Bank of Mexico. The bank said this decrease resulted from lower contributions from core and non-core components.

Annual core inflation fell to 2.90% in December as a result of a lower annual growth rate of the goods subindex and appreciation of the exchange rate, the release said.

In addition, the governors said the prices of some services, mainly related to telecommunications, decreased.

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.