February 1, 2013 / 5:00 PM / in 5 years

WRAPUP 2-Mexico central bank split over rate-cut signal -minutes

* One dissenter to January rate cut signal

* Some argued any cut should be a one-off

* Analysts trim 2013 inflation outlook

MEXICO CITY, Feb 1 (Reuters) - Mexico’s central bankers disagreed over whether to send a signal that they might cut interest rates if inflation keeps cooling, according to minutes of their January discussions, released on Friday.

Banco de Mexico board members unanimously decided to keep interest rates steady at 4.5 percent at their monetary policy meeting two weeks ago, when they surprised analysts by hinting they might lower rates in future.

The minutes showed one of the four board members argued against putting markets on notice of a possible cut, which has prompted markets to price in a 25-basis-point easing by July.

The minutes also suggested that any cut would be a one-off rather than the start of a new easing cycle.

“The majority of board members considered that the economy could grow at a faster pace without observing inflation pressures, in which case it would be possible to have a lower level of rates without compromising convergence to the inflation goal,” the minutes said.

“In contrast, one member indicated that inflation has not yet converged to 3 percent. He added that sending a signal of a future rate reduction could be premature, given that there is not yet enough information to justify such a move.”

Yields on Mexican interest rate swaps were little changed after the minutes. The market has priced in a 25-basis-point cut to the benchmark rate by September.

The central bank has welcomed an easing in inflation towards its 3 percent target, to 3.57 percent in December and 3.21 percent in early January, after seven months above 4 percent in mid-2012.

Board member Manuel Sanchez told Reuters on Tuesday the easing in inflation was a good sign for the future although the downward trend has yet to be consolidated.

The minutes showed most policymakers thought risks to inflation had eased and would keep on a downward path towards 3 percent in 2013, with no home-grown price pressures.

Some members argued a cut would help the economy adjust to tighter fiscal policy, as long as it was not repeated.

“Some members signaled that if a cut is decided, it should be communicated as a one-off correction which fully reflects the gains in the battle against inflation and not as the start of a cycle of relaxing monetary policy,” the minutes said.


The Banco de Mexico has left rates unchanged since mid-2009, when Latin America’s number-two economy was in the midst of a deep recession.

Although U.S. demand for manufactured goods supported growth last year, most policymakers saw a weak global environment and expressed concern about a slow recovery north of the border, the destination for almost 80 percent of Mexico’s exports.

In a worrying sign, the HSBC Purchasing Managers’ Index showed Mexican manufacturing growth eased last month as new export orders fell for the first time in more than a year.

A separate poll carried out by the central bank showed analysts saw the economy growing 3.55 percent in 2013, slightly up from a 3.45 percent forecast in the last poll in December, but down from an expected 4 percent expansion in 2012.

They lowered their expectations for inflation in 2013 to 3.67 percent, down from 3.69 percent in the previous survey, according to the average of 32 analysts.

The central bank poll changed its methodology this month, deepening the information on growth and inflation forecasts by including probability distributions as well as median estimates.

The minutes showed little support for analysts’ suspicions that the rate cut hint was aimed at curbing a rise in the peso , which hit a 10-month high on Jan. 17 as policymakers met. Lower rates would make the currency less attractive.

Although “some” board members said foreign inflows were putting upward pressure on currency, another said the currency tended to correct at the end of such episodes. Another said if the United States was moving towards slower growth, this would put downward pressure on the peso in the medium term.

“We do not think the central bank would cut just to manage the exchange rate,” said Ezequiel Aguirre, a strategist at Bank Of America in New York, noting the central bank’s commitment to a “hands-off” policy on the peso.

“If they moved to cut, it would be to take advantage of lower inflation ... which would give them the room to adjust the benchmark rate,” he said.

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