Mexico Holds Rates for 4th Month as Inflation Slows

Mexico's central bank held the benchmark lending rate for a fourth month after 12 increases since February 2004 slowed inflation and economic growth. Policy makers led by Governor Guillermo Ortiz today left the overnight loan rate between banks unchanged at 9.75 percent, the highest in 29 months. In a statement on the bank's Web site, they said inflation has been slowing as predicted yet remains above the target of 2 percent to 4 percent. The annual inflation rate has slowed to 4.3 percent in June since hitting 5.2 percent at the end of last year, causing Banco de Mexico to miss its target.

``It took them a long time to rebuild their credibility so they're trying to be conservative,'' said Alonso Cervera, an economist with Credit Suisse Group in a telephone interview from New York. ``They'll cut no later than September.''

Banco de Mexico's interest-rate increases caused the Mexican peso to rise to its strongest since July 2003 this week, helping contain costs of imported raw materials for companies such as Grupo Bimbo SA.

The peso has gained 4.8 percent against the dollar in 2005, the second-best performance of 16 major currencies tracked by Bloomberg. It fell 0.2 percent today to 10.6420 per dollar at 3:46 p.m. New York time.

``Interest rates are high and this is causing the exchange rate to be abnormally strong,'' said Guillermo Quiroz, chief financial officer at Bimbo, Latin America's largest bread maker. ``No one thought the peso would be at this level now,'' he said in a telephone interview from Mexico City.

Full article. July 22 (Bloomberg)