Banxico Couples with Fed

Mexico kept its policy rate unchanged Friday at 8.25%, saying the global economic deceleration has intensified. “During the first half, economic activity indicators in Mexico didn’t reflect the weakening of the US economy. However, more recent data suggest a deterioration, especially in private consumption growth and employment,” it says. The government expects inflation to approach its target of 3% during 2010, noting that it will likely moderate in the medium term thanks to the recent drop in commodities. Credit Suisse does not find the statement to be hawkish, but nor does it see the bank getting closer to easing policy. The shop estimates that Mexico’s year-on-year inflation will rise to an average of 5.8% in 4Q2008 from an average of 5.5% in 3Q, and that Mexico’s real GDP growth is likely to worsen in upcoming months. “We don’t think the central bank will be anywhere close to a position of easing monetary policy to address this problem until inflation gets much closer to the 4.0% level,” CS says. “We think this could happen by the middle of next year, at the earliest.”