MEXICO CITY, March 21 Mexico's central bank is
expected to hold its main interest rate steady on Friday as
policymakers balance the impact on inflation of new taxes and a
weak peso with the drag on consumer prices from sluggish
Analysts in a Reuters poll last week unanimously projected
that the central bank will hold its benchmark rate
at a record low of 3.5 percent to help nurse economic recovery.
Annual inflation in Mexico cooled off an eight-month high in
February as the effect of new taxes from a fiscal reform eased,
backing bets that the central bank will keep interest rates on
hold this year.
Policymakers have argued that the rise in inflation is
probably temporary, but they are watching for any signs of a
wider contagion to consumer prices, such as worsening inflation
expectations or a jump in wages.
Inflation is still running above 4 percent, the central
bank's limit for acceptable price gains.
In the central bank's last statement at the end of January,
policymakers warned that a weak peso could further fuel
inflation. The peso slumped sharply to a 1-1/2 year low in
January as investors dumped emerging market assets.
The currency has bounced back since then, but policymakers
are likely still wary that concerns about less U.S. monetary
stimulus could further hurt the peso and risk adding to
inflation pressures by making imports more expensive.
Central Bank Governor Agustin Carstens said last week he
expects inflation to head back toward the bank's 3 percent
target, but he said that policymakers will remain vigilant for
any signs of price contagion.
The central bank lowered borrowing costs in September and
October after an economic contraction in the second quarter and
policymakers are expected to keep rates steady amid a tepid
recovery in U.S. demand for Mexican exports.
Analysts expect Mexico's economy to grow around 3.4 percent
this year after it expanded only 1.1 percent in 2013. The
government has so far stuck to estimates for 3.9 percent growth
The median of analysts' projections say the central bank
will raise its benchmark rate to 3.75 percent in the first
quarter of 2015, on par with estimates in a poll released in
(Reporting by Michael O'Boyle; Editing by Eric Walsh)