By Alexandra Alper and Michael O'Boyle
MEXICO CITY, April 1 Analysts surveyed by
Mexico's central bank lifted their expectations for inflation
this year, hinting at waning confidence in the bank's ability to
control inflation after its recent interest rate cut.
In March, Mexico's central bank cut interest rates for the
first time in nearly four years to an all-time low of four
percent even as inflation was rising.
Policymakers made the cut in a bid to undermine the appeal
of peso-denominated debt and cool a surge in the currency that
could eventually hurt exporters and drag on growth.
Data later in the month showed inflation jumped above the
bank's 4 percent tolerance ceiling in early March, an increase
the bank expects will be temporary.
A poll of 33 analysts released on Monday showed annual
inflation in 2013 is seen ending the year at 3.75 percent, up
from 3.66 percent in the previous poll a month earlier. The
latest prediction is above the central bank's 3 percent target
but within its comfort zone.
"The deterioration of inflation expectations ... may be
reflecting the perception that the (the central bank) turned
more inflation dovish following the 50 basis point rate cut
enacted March 8," Goldman Sachs economist Alberto Ramos said in
a client note.
Central bank board members expressed concerns that capital
inflows could grow even higher this year, but the board split
over the cut, 4 to 1.
Ahead of the rate decision, Central Bank board member Manuel
Sanchez warned a cut would be premature, arguing that both the
downward trend in inflation and inflation expectations had yet
to be confirmed.
The peso has gained more than four percent this year and hit
its strongest in more than 1-1/2 years after the central bank
lowered interest rates in a "one-off" adjustment, the bank said.
Optimism about the new government's push to pass
long-stalled economic reforms through the country's divided
Congress is expected to support further peso gains.
The poll also saw a drop in growth expectations in Latin
America's No. 2 economy.
Analysts surveyed expected an expansion by 3.46 percent this
year, below a forecast of 3.54 percent predicted in the prior
The Finance Ministry has said it expects Mexico to grow by
3.5 percent this year, down from 3.9 percent in 2012 on expected
weakening of U.S. demand for Mexican goods.
Separate data showed Mexican factory activity growth slowed
for the third month in a row in March to its weakest pace of
expansion since the start of last year.
The HSBC Mexico Manufacturing Purchasing Managers' Index
(PMI) dipped to 52.2 in March, its lowest reading
in 14 months, down from 53.4 in February, after adjusting for