Mexican Central Bank Holds Interest Rate at 4.50%

The Banco de Mexico maintained its overnight interest rate target unchanged at 4.50%.  In its monetary policy statement the Bank noted: "productive activity in Mexico maintains a positive trend, although the rate of growth has lost some momentum,"... and "If the performance of the national economy and international financial markets results in an unnecessary tightening of monetary policy, the Governing Board will reflect on the appropriateness of adjusting it,".  Markets took the comments as indicating a possible rate cut, pricing in one 25 basis point rate cut by late 2012, according to Reuters.

The Mexican central bank also maintained the overnight interest rate target steady at 4.50% at its July meeting.  Mexico reported annual inflation of 3.28% at the end of June, compared to 3.4% April (3% in March), and 3.3% in the middle of May, and within the Bank's inflation target range of 3% +/- 1%.  The Mexican economy grew 4.6% year on year in Q1 this year, up 0.5% from the previous quarter, compared to GDP growth of 5.4% in 2010.  The Mexican peso (MXN) is down about 2% against the US dollar this year, and last traded around 12.45.

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