Mexico central bank wary of slow growth

FE Team | Published: April 06, 2014 00:00:00 | Updated: November 30, 2026 06:01:00

MEXICO CITY, Apr 5 (Reuters): Most of Mexico's central bankers think that a spike in inflation has likely passed, but fear short-term risks to economic growth could push them to cut their growth outlook, minutes of the March 31 board meeting released on Friday showed.
Central Bank board members voted at the meeting to hold their benchmark interest rate at a record low of 3.50 per cent.
The minutes did not specify if the decision was unanimous or not, a rare omission for the bank. The central bank later issued a statement clarifying that the decision was unanimous, 5-0.
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 per cent and 4 per cent 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.
Analysts expect the bank will hold borrowing costs steady this year as the economy recovers from a weak start to 2014.
"The minutes confirm that the economic environment does not suggest an imminent change in monetary policy," Barclays analyst Marco Oviedo said in a report. "Growth is the main concern, but not enough to trigger a reaction."
Most of the policymakers said there was no evidence that taxes introduced this year were spurring wider price pressures. Data late last month showed annual inflation fell back below the bank's 4 per cent ceiling in early March.
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.
When asked on local radio on Friday if growth could reach 5 per cent by the end of President Enrique Pena Nieto's term in 2018, Banco de Mexico Governor Agustin Carstens replied; "My perspective is yes."