By Michael O'Boyle and Tomas Sarmiento
MEXICO CITY Feb 12 Mexico's central bank on
Wednesday said that a recent spike in inflation had likely
peaked, suggesting policymakers will leave interest rates steady
Banco de Mexico Governor Agustin Carstens said at the
presentation of the bank's quarterly report that policymakers
would act if they saw that a recent jump in consumer prices was
spurring wider price pressures, such as higher wages.
Consumer price inflation in Latin America's No. 2 economy
rose to an eight-month high of 4.48 percent in January due
mostly to a new tax on soft drinks, surging past the central
bank's limit of 4 percent.
"The shocks we are seeing are transitory," Carstens said.
"We would raise interest rates if we saw evidence of
Carstens said inflation had likely peaked during the first
half of January, when the new taxes took effect, and price
behavior in the second part of the month suggested the tax hike
was not spurring wider price pressures.
The central bank said in its report that annual inflation
would remain above 4 percent in the first months of 2014 before
falling below that level in the second half of the year. Last
November, the central bank forecast inflation of around 3.5
percent this year.
Mexico's central bank kept its main interest rate on hold at
a record low 3.50 percent on Jan. 31, saying it would watch
inflation expectations while also making sure a slump in the
peso does not stoke further price pressures.
The recent rise in inflation had prompted bets in the
interest rate swap market for a hike this year. A
Banamex poll last week showed the median estimate is for the
central bank to raise rates in March 2015.
Carstens said there was little chance that Mexico's central
bank would resort to discretionary intervention in the foreign
exchange market amid a global slump in emerging market assets.
The country's peso is down more than 2 percent this
year, but Mexico has eschewed the forms of direct intervention
used by other emerging economies to prop up their currencies.
Carstens also said he doubted there would be a "selloff" of
Mexican assets since the Mexican economy was stronger than other
Foreign holdings of Mexican peso debt have grown nearly
seven-fold since the end of 2008 to more than 1.8 trillion
Mexican pesos ($135 billion) and a mass exit by foreigners would
hammer the peso.
The central bank said the economy grew around 1.2 percent in
2013 and it stuck to its forecast for an expansion in 2014 of
between 3.0 percent and 4.0 percent.
Sluggish growth will also keep price pressures down. The
bank said the output gap would remain negative during 2014,
which means the economy will not be growing fast enough to add
to inflation pressures this year.