* Policymakers ready to increase rates if prices rise again
* Central bank sees growth slowing in coming months
* Sees in inflation "very close" to 4 percent by year-end
By Alexandra Alper and Michael O'Boyle
MEXICO CITY, Nov 7 Mexico's central bank said on
Wednesday that inflation has peaked and will end the year very
close to its 4 percent ceiling, but warned it could tighten
interest rates soon if price pressures rise again.
Banco de Mexico Governor Agustin Carstens told a news
conference he was concerned that a spike in inflation above 4
percent during the last five months would feed into inflation
expectations and wage demands.
Tighter borrowing costs would not help ease the impact on
inflation from supply-side shocks, such as a drop in egg
production after an outbreak of avian flu, Carstens said, but an
interest rate rise could prevent wider inflation pressures.
"With tighter monetary policy we will certainly not get the
hens to lay more eggs, that is obvious," Carstens said.
He added that a "preventative" increase might be needed if
inflation starts to rise again after cooling in early October.
"The idea is to act on the rest of the prices in the
economy; keep the rest from rising," Carstens said. "That would
be the aim of the preventative action the bank could soon
Still, Carstens said it was very likely that inflation
peaked at the 2-1/2 year high seen in September and he forecast
it would end the year "very close" to 4 percent, although he
declined to say whether it would undershoot or overshoot that
Data due on Thursday is expected to show the annual
inflation rate fell to 4.66 percent in October from 4.77 percent
Yields on Mexican interest rate swaps were little
changed as investors stuck to bets that are pricing in about a
75 percent chance of an interest rate rise sometime next year.
"The market had already priced in this tone from Carstens
and is inclined toward a hike next year due to these risks to
inflation," said Salvador Orozco, a strategist at Santander in
Carstens also said an expected deceleration in economic
growth in the coming months would also help tame inflation as a
global slowdown dragged on Mexico.
Mexico has so far weathered a global downturn better than
many economies, buoyed by U.S. demand for its exports.
The bank expects growth of between 3.5 percent to 4.0
percent in 2012, narrowing its previous forecast range. The bank
sees growth of 3 percent to 4 percent in 2013, unchanged from
its previous forecast.
Carstens warned that Mexico's economy would suffer if U.S.
lawmakers fail to turn back from a "fiscal cliff" of about $600
billion in tax increases and spending cuts due in January that
could push the United States back into recession.
U.S. President Barack Obama's Democrats failed to win a
majority in the lower house of Congress, meaning he must still
negotiate with Republicans to roll back the fiscal legislation.
Carstens hoped the call for unity taken by Obama after he
won re-election, as well as a similar tone from his opponent,
Mitt Romney, could help promote the political consensus needed
to avoid the fiscal cliff.
"We hope this call is effective, since it would help the
United States, above all, but also the rest of the world," he
The central bank held its benchmark interest rate steady at
4.50 percent last month, although policymakers said they could
tighten monetary policy for the first time in four years if
price pressures do not abate.
A jump in some fresh food prices drove Mexico's annual
inflation rate above the central bank's 4.0 percent limit for
four months in a row, but the rate fell in the first half of