UPDATE 2-Mexico cenbankers agree on rate rise signal but little else

Fri Nov 9, 2012 12:43pm EST

Related Topics

* Minutes show interest rate warning agreed unanimously
    * All policymakers see higher price risks in short term
    * Board divided 3-2 on longer-term inflation outlook, risks


    By Krista Hughes and Alexandra Alper
    MEXICO CITY, Nov 9 (Reuters) - Mexico's central bankers
unanimously agreed to send a signal that they may raise interest
rates soon if inflation remains high, but meeting minutes
released on Friday show deep divisions on the prices outlook,
suggesting little chance of imminent action.
    All five members of the Banco de Mexico's monetary policy
board voted to keep interest rates steady at 4.5 percent at the
meeting two weeks ago, according to minutes of their discussion.
    Policymakers were also united in their decision to put
markets on notice that they were ready to hike preemptively if
inflation - which slowed for the first time in five months in
October - did not trend down toward their 3 percent target.
    "All members of the board agreed to send a signal of a
possible rate adjustment in the future if high levels of
inflation persist in order to reinforce the anchoring of
inflation and of inflation expectations, as well as to prevent
contagion," the minutes said.
    Members all agreed that the short-term risks to inflation
had risen, but the summary of their debate about such risks
shows little unity beyond that. Economists said many on the
board clearly did not think they would need to carry out the
threat.
    "They had to send a signal showing their commitment to hike
if they have to, but then when it comes to the conditions that
are required to hike, there is a lot of disagreement," said BNP
Paribas economist Nader Nazmi, who expects rates to rise in
October 2013.
    Most board members said the recent spike in inflation was
temporary and would reverse itself, though others argued that
there was no clear sign of inflation heading toward 3 percent.
    Most saw no sign of widening price pressures, but one member
argued that processed food and food services prices were being
pushed higher by a spike in fresh food prices.
    Most saw inflation expectations as well anchored, yet others
disagreed with one arguing the public's faith in the central
bank could be shaken by current high inflation rates.
    
    NO HIKE IMMINENT
    Investors are pricing in a hike in early 2014, having
backpedaled on bets on a 2013 move after inflation came in at a
lower-than-expected 4.6 percent in October, easing off a 2-1/2
year high the previous month. 
    The data backed the central bank's forecast of an easing in
the price pressures that have plagued Latin America's No. 2
economy over the past five months. 
    
 
    
    Inflation has been pushed to quicken by fresh food prices as
the cost of eggs and chicken rose following an outbreak of avian
flu in western Mexico and bad weather damaged crops.
    However, data released by the National Statistics Agency
showed a drop in some fresh food prices last month and few signs
of knock-on effects, assuaging fears that sustained high food
prices would hit prices of other less volatile goods.
    The central bank has also said a stronger peso as well as an
expected deceleration in growth in the second half of the year
would help tame inflation as a global slowdown dragged on
Mexico.
    Economists said wage increases - one concern cited by at
least some policymakers - had already started to turn down,
pointing to data from the employment ministry showing wages rose
4.2 percent in the year to October, from 5 percent in August and
September.
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