Mexico Interest Rate Stable
World Economy

Mexico Interest Rate Stable

Mexico’s central bank has kept its overnight interest rate unchanged, matching a decision last week by the Federal Reserve, after the peso’s rebound from a record low eased concern that inflation expectations would climb.
Banco de Mexico held the overnight rate at 3.75% as forecast by all 26 economists surveyed by Bloomberg.
Mexico’s coordinated mid-February moves, when the central bank raised the key rate between scheduled decisions and the finance ministry announced spending cuts, have been “quite successful” in stabilizing the peso, Governor Agustin Carstens said in an interview last month.
Given that the key rate remains near an all-time low, the central bank can increase borrowing costs gradually and in line with the Fed without hurting the economy, Carstens said.
Inflation remains below the central bank’s 3% goal, and a report last week showed the economy expanded more than analysts forecast in the first quarter, led by consumer spending and a slight rebound in industrial output.
“You have the economy posting good numbers, but not above potential growth, and inflation is not a concern,” Benito Berber, senior economist for Latin America at Nomura Holdings Inc. in New York, said before the rate decision.
“Under those conditions, attaching monetary policy to the Fed is the most likely scenario. The wild card is the peso, and the faster the depreciation goes, the greater the probability that the central bank could do more than the Fed.”
The peso has rebounded 9.2% from a record low on Feb. 11, a move that followed the central bank’s surprise half-point rate increase, higher oil prices and diminished projections for Fed rate increases. But the recovery hasn’t been constant.


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