Mexico cenbank member says 'too soon' to make call on rate cut

MEXICO CITY Thu Feb 14, 2013 7:20pm EST

MEXICO CITY Feb 14 (Reuters) - Mexican senators ratified economist Javier Guzman to the board of Mexico's central bank on Thursday and he said it was still too soon to say if the country could cut interest rates.

Guzman, a Yale-educated economist who was nominated by new President Enrique Pena Nieto in December, was confirmed by the Senate on Thursday in a 81-0 vote, with 10 abstentions.

Guzman will join the other four members of the board, who last month said they now see the conditions forming to cut borrowing costs if inflation keeps cooling after a recent spike.

Speaking after the vote, Guzman said there were downside risks to Mexico's economy, due mostly to the impact of sluggish growth in the United States and Europe, while the risks to inflation had improved.

"It's not possible to say at this time if this justifies an interest rate cut," Guzman said, adding the board would need to see more data.

"This cut in the interest rate would of course have to be completely compatible with the inflation target, which is the (central bank's) main objective," he said.

The central bank targets 3 percent inflation with a 1 percent tolerance band. After a jump in food prices last year, the annual inflation rate has fallen from a 2-1/2-year high near 5 percent in September, to 3.25 percent in January.

"What we have right now is an inflation rate that has been falling in a very big way, and on the other hand, we have a monetary policy that has allowed us to absorb supply side shocks without these shocks causing second order effects," Guzman said.

Mexico has held its benchmark rate steady at 4.50 percent since mid-2009.

Mexico's central bank chief Agustin Carstens on Wednesday warned that lower interest rates are not a "done deal" for Latin America's second-largest economy, pushing investors to trim bets on a 25 basis point rate cut by March..

Investors have still priced in a 25 bps cut by April and some economists are eyeing the chance for a 50 bps or 75 bps point cut this year.

Guzman fills the spot left by Deputy Governor Jose Julian Sidaoui, who was one of the board members most concerned with inflation. Guzman worked previously at the International Monetary Fund and the Center of Latin-American Monetary Studies.

FILED UNDER: