Banco de Mexico board of governors keeps overnight interest rate at 4%

By Caroline Salls

Pittsburgh, April 26 - The board of governors of Banco de Mexico kept its overnight interest rate at 4%, according to a news release issued by the bank.

The bank lowered the rate to 4% in March. Before that, the rate had been 4½% since July 2009.

The board said global economic activity continues to show signs of weakness, show significant differences between regions and remain dependent on monetary and fiscal stimulus in advanced countries.

In the United States, the governors said a recent slowdown has weakened some indicators of the economic recovery after a higher-than-expected growth in the first months of the year.

In the euro zone, the board said fiscal consolidation, the fragility of the banking system and ongoing deleveraging keep the region in recession.

In addition, the bank said the short-term growth prospects of the Japanese economy have improved with the announcement of an unprecedented monetary and fiscal stimulus, but there are still doubts about the effectiveness of the strategy in the medium term.

According to the release, growth in the emerging markets appears to have moderated in response to the weakness in advanced countries.

The board said financial market conditions have shown a gradual improvement, albeit with some volatility, in response to actions taken by the authorities of the major advanced economies.

The bank said this improvement is reflected in domestic financial markets. In particular, the increasing flow of capital into Mexico has led to appreciation of the peso and decreases in market interest rates.

Derived from the slowdown in the global economy, the governors said various indicators of economic activity in Mexico have seen a slowdown, and external demand and consumption indicators continue to show signs of weakness.

The board said there are prevailing downside risks to economic activity in Mexico derived mainly from the possibility that the recent slowdown in the U.S. economy could intensify.

Annual headline inflation in Mexico increased significantly in March and early April, the board said. The bank cited supply shocks resulting from the effect frost in early March had on the prices of some vegetables and a recent increase in public transportation fares.

Headline inflation is expected to remain high in April and May and resume a downward trend in June, settling between 3% and 4% in the second half of the year, the bank said. Headline inflation is expected to be close to 3% by 2014.

The board said the price formation process has not been affected by the increase in headline inflation and remains consistent with the convergence of inflation to the target of 3%.

Core inflation has remained very close to 3%, the release said.

As a result, the bank said expectations of inflation in the medium and long term have remained stable.

© 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.