Mexican policy makers were unanimous in their decision to leave interest rates unchanged this month as pressure on inflation eased and the Federal Reserve signaled it may begin to withdraw stimulus in the U.S., the minutes published today show.
The central bank’s five-member board left borrowing costs at a record-low 4 percent on July 12 after cutting them in March for the first time since 2009. The decision was a response to the risk of a prolonged economic slowdown and the potential for new inflationary pressures, policy makers said at the time.
The inflation rate fell to 3.53 percent in the first half of July, dropping within the central bank’s target range of 2 percent to 4 percent and backing forecasts by some analysts for a second rate cut this year.
Yields on six-month interest-rate swaps closed at 4.27 percent yesterday, indicating traders see about a 24 percent chance the bank will lower rates over that period.
The possibility of the Fed easing its rate of bonds purchases is “the most important change in the international environment,” according to the minutes.
The board’s decision was influenced by “the recent development of inflation and its expectations, the significant slowdown in the Mexican economy, the fragility of the external environment and the volatility in international financial markets.”
The bank may be wary of renewed peso weakness after Federal Reserve Chairman Ben S. Bernanke signaled in May that the U.S. could dial back stimulus, sending the currency to a 10-month low against the dollar on June 20.
Peso Stability
The peso slid 0.9 percent to 12.7212 per U.S. dollar at 9:44 a.m. in Mexico City, paring its rally in the past month to 3.5 percent. The currency has risen after Bernanke damped speculation that the withdrawal will begin soon.
“A stable peso is a necessary condition for a rate cut from Banxico in September or October,” Ociel Hernandez, the head of fixed income at Grupo Financiero BBVA Bancomer SA, said in an e-mailed research note on July 24.
The bank forecasts a cut of a half percentage point, or 50 basis points, to 3.5 percent in September. The peso yesterday remained 5.3 percent below an almost two-year high reached in May.
Expectations for future rate moves have reversed over the past month as the currency strengthened and the inflation rate fell.
On June 21, swap contracts indicated about a 36 percent chance the bank would increase its benchmark rate within six months. Inflation will ease below 4 percent in the second half of the year, most policy makers said in today’s minutes.
bloomberg.com
The central bank’s five-member board left borrowing costs at a record-low 4 percent on July 12 after cutting them in March for the first time since 2009. The decision was a response to the risk of a prolonged economic slowdown and the potential for new inflationary pressures, policy makers said at the time.
The inflation rate fell to 3.53 percent in the first half of July, dropping within the central bank’s target range of 2 percent to 4 percent and backing forecasts by some analysts for a second rate cut this year.
Yields on six-month interest-rate swaps closed at 4.27 percent yesterday, indicating traders see about a 24 percent chance the bank will lower rates over that period.
The possibility of the Fed easing its rate of bonds purchases is “the most important change in the international environment,” according to the minutes.
The board’s decision was influenced by “the recent development of inflation and its expectations, the significant slowdown in the Mexican economy, the fragility of the external environment and the volatility in international financial markets.”
The bank may be wary of renewed peso weakness after Federal Reserve Chairman Ben S. Bernanke signaled in May that the U.S. could dial back stimulus, sending the currency to a 10-month low against the dollar on June 20.
Peso Stability
The peso slid 0.9 percent to 12.7212 per U.S. dollar at 9:44 a.m. in Mexico City, paring its rally in the past month to 3.5 percent. The currency has risen after Bernanke damped speculation that the withdrawal will begin soon.
“A stable peso is a necessary condition for a rate cut from Banxico in September or October,” Ociel Hernandez, the head of fixed income at Grupo Financiero BBVA Bancomer SA, said in an e-mailed research note on July 24.
The bank forecasts a cut of a half percentage point, or 50 basis points, to 3.5 percent in September. The peso yesterday remained 5.3 percent below an almost two-year high reached in May.
Expectations for future rate moves have reversed over the past month as the currency strengthened and the inflation rate fell.
On June 21, swap contracts indicated about a 36 percent chance the bank would increase its benchmark rate within six months. Inflation will ease below 4 percent in the second half of the year, most policy makers said in today’s minutes.
bloomberg.com
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