| | |  Business News | July 2008 
Mexico Bank May Raise Rate for Second Month as Inflation Mounts
 Jens Erik Gould - Bloomberg
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| | Guillermo Ortiz, Mexico's Central Bank governor, speaks during a presentation of the bank's quarterly inflation report in Mexico City, Jan. 30, 2008. (Susana Gonzalez/Bloomberg News) | | |
Mexico's central bank will probably raise its benchmark interest rate for the second straight month in a bid to temper the fastest inflation in more than three years.
The bank's five-member board, led by Governor Guillermo Ortiz, will increase the key lending rate by a quarter of a percentage point to 8 percent today, according to 20 of 27 economists surveyed by Bloomberg. Seven others said the rate will stay unchanged.
Policy makers will raise borrowing costs to slow consumer demand and prevent inflation driven by higher food and energy costs from spreading to locally produced goods and services, said Bertrand Delgado, a Latin America economist at IDEAglobal Inc., a New York-based research firm.
"Inflation pressure will remain very strong during this quarter," Delgado said. "Banxico needs to make sure this doesn't contaminate other prices," he said, referring to the central bank.
Banco de Mexico surprised analysts last month by raising borrowing costs for the first time in eight months. The bank said in its report that inflation may exceed its forecast for the rest of this year and in the beginning of 2009.
A benchmark rate of 8 percent would be the highest since December 2005.
Consumer prices rose 5.26 percent in June, the first month that annual inflation exceeded the bank's forecast of no more than 5 percent in the second and third quarters of this year.
Inflation Forecast
The bank will probably raise its inflation forecast in its quarterly report on July 30, said Gray Newman, chief Latin America economist at Morgan Stanley in New York.
Rafael de la Fuente, senior economist for Latin America at BNP Paribas in New York, predicts the bank will keep rates unchanged today, in part because an economic slowdown in the U.S. may curb growth in Mexico.
"I expect them to hike, but not this month," de la Fuente said.
Mexico's government says the economy is less vulnerable to a slowdown in the U.S. than it was during the U.S. recession of 2001. Even so, Mexican consumer confidence fell more than economists estimated in June, to the lowest since January 2002.
President Felipe Calderon on June 18 announced an accord with industry groups to freeze the price of canned tuna, coffee, beans and about 150 other items in a bid to hold down prices. Wheat, corn and rice have risen to records this year because of shrinking global stockpiles and more demand.
Calderon has also tried to fight higher food prices by lifting import tariffs on corn, wheat, rice and beans in May. He eliminated import taxes on nitrogen-based fertilizer, and cut in half the tax on imported powdered milk.
To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9(at)bloomberg.net |
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