Tags: Mexico | Central | Bank | Outlook

Mexico Central Bank Cuts Outlook for 2013-14

Wednesday, 06 Nov 2013 06:36 PM

Mexico's central bank on Wednesday cut its growth outlook for this year and next after a sharp economic slowdown but reaffirmed its view that no more rate cuts are advisable because it eyes a rebound.

Mexico's central bank cut interest rates twice in the last two months after Latin America's No. 2 economy contracted in the second quarter for the first time in four years.

In its quarterly inflation report on Wednesday, the Banco de Mexico slashed its outlook for growth in 2013 to between 0.9 and 1.4 percent from a previous 2 to 3 percent estimate.

The bank forecast a recovery for 2014, with growth rising to between 3.0 and 4.0 percent, still short of previous expectations for a 3.2 to 4.2 percent expansion.

"We are seeing elements that indicate that the economy is rebounding and that should take on greater luster going forward," said central bank chief Agustin Carstens. "We think that it is no longer opportune to lower interest rates."

Last month, the bank cut interest rates by 25 basis points to a record low of 3.5 percent.

Still, Carstens said Mexico "will not reach potential GDP (Gross Domestic Product) in the next 18 months, which means there will likely be enough slack in the economy for aggregate demand to grow without pressuring prices."

Mexican inflation has been cooling over the last five months, and data due on Thursday is expected to show price hikes eased in October to their lowest level since January as pressure on fresh food prices fades.

On Wednesday, the bank said it sees inflation at around 3.5 percent by year-end, fluctuating around that level in 2014 and then trending lower to around 3 percent in 2015.

Carstens also said a watered down tax overhaul pushed through Congress by Mexican President Enrique Pena Nieto is likely to have a transitory impact on inflation, boosting it by 40 basis points next year.

The plan is part of an economic package that aims to raise taxes on Mexico's wealthiest and close loopholes but also envisions new spending next year to prop up the ailing economy.

The central bank said next year's wider budget deficit would cut financing for the private sector to around 2.3 percent of gross domestic product in 2014 from 2.7 percent this year, but higher spending will not fuel a macroeconomic problem.

Carstens also said the reform would boost growth by 20 basis points next year.

But the central bank said it was crucial for the government to stick to a pledge to reduce the fiscal deficit to zero by 2017 in order to channel more resources to the private sector.

Carstens urged lawmakers to make good use of the added spending.

"What is really important is that this fiscal space that they are using be used responsibly and is channeled to projects that support the country's economic growth," he said.

© 2017 Thomson/Reuters. All rights reserved.

 
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Mexico's central bank on Wednesday cut its growth outlook for this year and next after a sharp economic slowdown but reaffirmed its view that no more rate cuts are advisable because it eyes a rebound.
Mexico,Central,Bank,Outlook
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2013-36-06
Wednesday, 06 Nov 2013 06:36 PM
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