Marco Oviedo, Barclays Plc’s 39-year-old chief economist for Mexico, is a little taken aback that he’s the only analyst predicting the country will reduce interest rates this week.
“I’m surprised I’m the only one because, in my view, the conditions for a rate cut are stronger now than in June,” when the central bank unexpectedly lowered borrowing costs to a record-low 3 percent, he said by telephone from Mexico City.
“The economic data from Mexico is really bad.” Oviedo, who was former Mexico President Felipe Calderon’s chief of economic advisers before joining Barclays in 2012, abandoned his prediction for a rate increase after a widely followed growth gauge released Oct. 24 showed a slump in consumer demand and exports.
His call for a rate cut is at odds with all 24 other forecasters in a Bloomberg survey. They include economists at Credit Suisse Group AG and Grupo Financiero Banorte SAB, who are sticking with their forecasts that Mexico will keep its key rate unchanged on Oct. 31.
After lowering borrowing costs by 1.5 percentage points in a 15-month span, Banco de Mexico Governor Agustin Carstens has left them unchanged since June amid signs growth was finally picking up following the worst slowdown since 2009.
The central bank is likely to keep interest rates on hold in the next year, according to trading in the swaps market. Ricardo Medina, a spokesman for Banco de Mexico, declined to comment on market expectations for monetary policy.
Growth Outlook
While Carstens said on Oct. 26 that the expansion in Latin America’s second-biggest economy will accelerate to as much as 2.7 percent this year from 1.4 percent in 2013, he stated there was room for improvement.
“In general economic terms, the inflation rate and economic growth are going well, although they could be better,” he said at a conference in Queretaro, Mexico.
The comment came two days after the national statistics agency reported that a proxy indicator for economic growth called IGAE rose 1.3 percent in August from a year earlier, less than the 2.3 percent median forecast in a Bloomberg survey.
Oviedo, who worked at Mexico’s Finance Ministry for about six years after earning his doctorate in economics from Yale University, also cited a separate report that showed non-oil consumer goods imports sank 5.1 percent in September from the previous month, the most in two years.
Not Strange
A rate reduction “would not be a strange move by the bank,” said Rodolfo Navarrete, an economist at Vector Casa de Bolsa who has been the most accurate forecaster of Mexico rate decisions over the past two years in Bloomberg surveys.
“We’re refraining from raising or cutting our forecast until we get more data on growth.”
Alonso Cervera, chief economist for Latin America at Credit Suisse, said that with annual inflation accelerating to an eight-month high of 4.32 percent in the first two weeks of October, the central bank doesn’t have room to trim rates.
“Those aren’t the right conditions for a cut,” Cervera, the only analyst who correctly predicted all three of Mexico’s interest-rate cuts last year, said by phone from Mexico City.
The central bank will also avoid lowering rates because of concern the move may deepen the peso’s 3.4 percent drop against the dollar in the past two months, potentially driving up the cost of imports and adding to cost-of-living increases, according to Banorte chief economist Gabriel Casillas.
The peso rose 0.2 percent to 13.4229 pesos per dollar at 1:03 p.m. New York time.
‘No Space’
“Marco is a very good, serious economist, so clearly, if he has this call out, it’s credible,” Casillas said by phone from Mexico City. “They won’t cut. There is no space for a cut.” Oviedo said the pickup in inflation is probably over as it’s been triggered in part by a surge in meat prices.
He predicts price increases will slow to 4 percent by the end of this year and 3.5 percent next year. The inflation rate will near 3 percent in the first half of next year, the central bank has said. “We saw the peak of annual inflation and it’s going to start to decline,” Oviedo said. Carstens “surprised in June. He can do it again.”
bloomberg.com
“I’m surprised I’m the only one because, in my view, the conditions for a rate cut are stronger now than in June,” when the central bank unexpectedly lowered borrowing costs to a record-low 3 percent, he said by telephone from Mexico City.
“The economic data from Mexico is really bad.” Oviedo, who was former Mexico President Felipe Calderon’s chief of economic advisers before joining Barclays in 2012, abandoned his prediction for a rate increase after a widely followed growth gauge released Oct. 24 showed a slump in consumer demand and exports.
His call for a rate cut is at odds with all 24 other forecasters in a Bloomberg survey. They include economists at Credit Suisse Group AG and Grupo Financiero Banorte SAB, who are sticking with their forecasts that Mexico will keep its key rate unchanged on Oct. 31.
After lowering borrowing costs by 1.5 percentage points in a 15-month span, Banco de Mexico Governor Agustin Carstens has left them unchanged since June amid signs growth was finally picking up following the worst slowdown since 2009.
The central bank is likely to keep interest rates on hold in the next year, according to trading in the swaps market. Ricardo Medina, a spokesman for Banco de Mexico, declined to comment on market expectations for monetary policy.
Growth Outlook
While Carstens said on Oct. 26 that the expansion in Latin America’s second-biggest economy will accelerate to as much as 2.7 percent this year from 1.4 percent in 2013, he stated there was room for improvement.
“In general economic terms, the inflation rate and economic growth are going well, although they could be better,” he said at a conference in Queretaro, Mexico.
The comment came two days after the national statistics agency reported that a proxy indicator for economic growth called IGAE rose 1.3 percent in August from a year earlier, less than the 2.3 percent median forecast in a Bloomberg survey.
Oviedo, who worked at Mexico’s Finance Ministry for about six years after earning his doctorate in economics from Yale University, also cited a separate report that showed non-oil consumer goods imports sank 5.1 percent in September from the previous month, the most in two years.
Not Strange
A rate reduction “would not be a strange move by the bank,” said Rodolfo Navarrete, an economist at Vector Casa de Bolsa who has been the most accurate forecaster of Mexico rate decisions over the past two years in Bloomberg surveys.
“We’re refraining from raising or cutting our forecast until we get more data on growth.”
Alonso Cervera, chief economist for Latin America at Credit Suisse, said that with annual inflation accelerating to an eight-month high of 4.32 percent in the first two weeks of October, the central bank doesn’t have room to trim rates.
“Those aren’t the right conditions for a cut,” Cervera, the only analyst who correctly predicted all three of Mexico’s interest-rate cuts last year, said by phone from Mexico City.
The central bank will also avoid lowering rates because of concern the move may deepen the peso’s 3.4 percent drop against the dollar in the past two months, potentially driving up the cost of imports and adding to cost-of-living increases, according to Banorte chief economist Gabriel Casillas.
The peso rose 0.2 percent to 13.4229 pesos per dollar at 1:03 p.m. New York time.
‘No Space’
“Marco is a very good, serious economist, so clearly, if he has this call out, it’s credible,” Casillas said by phone from Mexico City. “They won’t cut. There is no space for a cut.” Oviedo said the pickup in inflation is probably over as it’s been triggered in part by a surge in meat prices.
He predicts price increases will slow to 4 percent by the end of this year and 3.5 percent next year. The inflation rate will near 3 percent in the first half of next year, the central bank has said. “We saw the peak of annual inflation and it’s going to start to decline,” Oviedo said. Carstens “surprised in June. He can do it again.”
bloomberg.com
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