Reuters: US Dollar Report: UPDATE 1-Mexico central bank eyeing weak peso, growth risks

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UPDATE 1-Mexico central bank eyeing weak peso, growth risks Jun 8th 2012, 15:00 Tweet Share this Email Print Related Topics Currencies » Bonds News » Bonds » Markets » Fri Jun 8, 2012 11:00am EDT * Policymakers hold interest rates at 4.50 percent * "Moderate" risk to inflation seen from weak peso * Deepening Europe troubles raise risks to global, Mexican economy MEXICO CITY, June 8 (Reuters) - Mexico's central bank held interest rates steady on Friday and said risks to growth had increased even as a sharp fall in the peso kept inflation worries alive. The Banco de Mexico left its key rate at 4.50 percent, where it has hovered since mid-2009 in the middle of a deep recession. The decision to hold rates was unanimously predicted by analysts in a Reuters poll. In the statement accompanying the decision, policymakers made it clear their next move could go either way, dropping the flirtation with a rate cut that had kept markets on their toes in recent months. "Going forward, the board will remain alert to how all factors determining inflation develop, since their behavior might make it advisable to make the monetary policy stance more or less restrictive depending on the scenario that arises," the central bank said. Policymakers removed a passage that had been present since last year that suggested they could cut interest rates if the U.S. Federal Reserve enacts a third round of large-scale bond buying. They said risks to growth had deteriorated both in Mexico and globally, pointing to the recent deepening of Europe's debt crisis. Yet they also acknowledged a "moderate" risk to inflation from the weak peso. The peso has fallen about 8 percent since the central bank's last policy meeting in April. Although it has bounced back from a three-year low hit last week, analysts expect concerns about Europe's debt troubles to keep it under pressure in coming weeks. Mexico's economy started the year strongly, helped by demand for its manufactured goods in the United States. The central bank lifted its growth forecast for 2012 in May to a range of from 3.25 percent to 4.25 percent. The annual inflation rate rose to 3.85 percent in May. Core services inflation is increasing, but this remains well below 3 percent and shows only a gradual acceleration in home-grown price pressures. Inflation is expected to rise in coming months but then to fall back by the end of the year to 3.65 percent, according to a monthly central bank poll of analysts carried out at the end of May and published on June 1. Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (0) Be the first to comment on reuters.com. Add yours using the box above.

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