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Mexico has inflation under control: Carstens

Mexico has inflation under control: Carstens

Posted by Ricardo Vázquez on October 01, 2014

Mexico’s central bank has done a “good job” in helping guide the economy and the inflation rate will probably near its 3 percent target toward the middle of next year, Governor Agustin Carstens said.

A change in the way gasoline prices are fixed will help curb the rise in broader consumer costs, Carstens said in an interview with El Financiero-Bloomberg TV, according to a transcript. Favorable comparisons with inflation this year, when the nation implemented a tax increase, will also help lower the annual rate starting in January, he said.

Stable inflation expectations have allowed policy makers to lower interest rates to boost the economy in the absence of pressures on core inflation, which excludes farm and energy costs, Carstens said. Policy makers cut borrowing costs 1.5 percentage points in a 15-month period to 3 percent, the lowest in Latin America, to revive an economy that struggled to bounce back from its weakest expansion since 2009.

“We’ve already had a number of years of being virtually at our mandate on inflation, there’s still a little marginal advance to go, but I hope that we can get it next year,” Carstens said. “From the point of view of the role it should play in the economy, I think the bank has done a good job.”

Growth Outlook

Consumer prices rose more than expected in the first half of September, with the annual inflation rate at 4.21 percent, above the central bank’s 2 percent to 4 percent target range.

While the bank hadn’t expected inflation to be above 4 percent at this point in the year, the faster price increases will probably prove transitory, Carstens said.

Investors have become convinced Carstens, who took office in January 2010, will increase borrowing costs from a record low after the central bank said this month in the minutes of its policy meeting that the economy is gaining strength while inflation is higher than expected, according to Bank of America Corp.

While the prospect of higher interest rates in the U.S. will probably create volatility for Mexico, the nation’s free floating currency will help to absorb the adjustment, Carstens said. Investors will favor nations that offer economic growth and stability, he said.

Rate Increase

Gross domestic product expanded more than forecast in the second quarter as a rebound in U.S. demand boosted exports, following two quarters of growth that missed analyst estimates. Interest-rate swaps show the likelihood of Banco de Mexico lifting its benchmark rate in the next year has jumped to 88 percent from 36 percent a month ago, according to data compiled by Bloomberg.

Mexico’s growth has been consolidating in the past two to three months and will probably be faster next year, Carstens said. Growth will accelerate to 3.8 percent in 2015, up from 2.5 percent this year and 1.4 percent last year, according to the median forecast of analysts surveyed by Bloomberg. Mexico’s central bank forecasts the economy will grow 2 percent to 2.8 percent this year and 3.2 percent to 4.2 percent next year.

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