Mexico central bank wary of slow growth

MEXICO CITY: Most of Mexico’s central bankers were convinced that a spike in inflation has likely passed while the majority said short-term risks to growth had increased, minutes released on Friday showed.

Central Bank board members voted at their March 31 meeting to hold their benchmark interest rate at a record low of 3.50 percent.

The minutes did not specify if the decision was unanimous or not, a rare omission for the bank. Most policymakers said that the risks of higher inflation had receded marginally, while the majority thought the bank would have to revise down its current growth outlook of between 3 percent and 4 percent for 2014.

“The majority of board members thought that the balance of risks to growth had deteriorated, on the margin,” the minutes said, with most board members adding that recent economic reforms improved the medium-term growth outlook. Most of the policymakers said there was no evidence that taxes introduced this year were spurring wider price pressures.

But some members said taxes could still drive so-called second round effects on prices, while more global volatility could hurt the peso and drive up inflation by making imports more expensive.

Mexico’s peso slumped early this year on fears about less US monetary stimulus and a global sell-off in emerging markets. But the currency hit a nearly 3-month high on Friday after solid US jobs data boded well for local exports.

Data late last month showed the pace of annual consumer price gains fell back below the bank’s 4 percent ceiling in early March.

Analysts expect the bank will hold borrowing costs steady this year as the economy recovers from a weak start to 2014.

Banco de Mexico Governor Agustin Carstens said on Thursday that Mexico’s economy is pulling out of an economic soft patch while inflation will head back toward 3 percent over the next 18 months.

Since the March 21 decision, data has shown that manufactured exports rose at their fastest pace in more than four years, while consumer confidence data for March released this week rose to a four-month high.

Analysts cut their estimates for growth this year to 3.09 percent, a poll from the central bank showed on Thursday, dropping their outlook for the third month in a row.

Puerto Vallarta News

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