Reporting by Jason Lange and Alistair Bell
MEXICO CITY (Reuters) - The world economic crisis is probably past the worst and the global economy is likely no longer in a free fall, Mexican Central Bank Gov. Guillermo Ortiz said on Friday.
Many countries have stopped cutting their economic growth forecasts and there has been a reduction in debt spreads, suggesting investors are becoming less risk averse, Ortiz told the Reuters Latin American Investment Summit in Mexico City.
"There is a sensation that we have probably touched bottom in this crisis," said Ortiz, also the head of the Bank for International Settlements.
The Mexican economy is likely to contract in the third quarter of this year on an annual basis but should show growth compared with the previous quarter, he said.
"Simply put, I think that we have firm signs that we will see a better second half compared to what we saw in the first half," he said.
Mexico's inflation rate is likely to diminish as demand from industry and consumers falls and the peso currency stabilizes, he said.
Stubborn inflation, caused partly in recent months by a slump in Mexico's peso as a result of the global credit debacle, has kept the central bank from cutting interest rates as aggressively as many other emerging market countries.
Most economists see Mexico cutting interest rates for the fifth straight month on May 15 and then more in coming months to fight a sharp contraction in the economy.
LOW RATES
The Bank of Mexico's benchmark overnight rate is currently 6.0 percent, much higher than Chile's 1.25 percent key interest rate. Brazil's benchmark Selic interest rate has been slashed to a record low of 10.25 percent to stoke economic growth.
Mexico is surveying private banks to see if there is interest in a second auction of short-term dollar credits designed to encourage banks to boost lending to companies, Ortiz said.
The central bank loaned $3.221 billion of the $4 billion it offered at an auction last month after activating a $30-billion swap line with the U.S. Federal Reserve.
He said access to short-term dollar financing appears to have become less a problem.
The swine flu outbreak that killed dozens of people in Mexico and shut down the economy for five days is expected by the government to shave up to half a percentage point off gross domestic product in 2009.
"The issue of the virus fortunately appears to be turning out less serious than was first thought. The economic life in the country is returning to normal," Ortiz said.
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