UPDATE 1-Mexico holds interest rate at 4.5 pct as expected

Fri Nov 27, 2009 3:45pm GMT
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(Adds comments by central bank on inflation, growth)

MEXICO CITY, Nov 27 (Reuters) - Mexico's central bank left its benchmark interest rate MXCBIR=ECI unchanged at 4.50 percent on Friday for the fourth straight month and warned that tax hikes for 2010 will fuel inflation.

The bank said price pressure from the tax increases will weigh on future interest rate decisions and that the bank will need to make sure they do not fuel higher inflation expectations.

"The bank will remain alert to make sure other prices are not contaminated and that medium-term inflation expectations remain well-anchored," according to the central bank statement.

At the same time the bank noted that Mexico's economy will remain weak next year, which would take some of the edge off of inflation.

Policymakers said they would release new economic forecasts for 2010 and 2011 next week.

The decision to keep the rate steady was nearly unanimously expected by economists consulted in a Reuters poll.

Mexico recently pulled out of one of the world's deepest recessions, helped by higher exports, although the economy's recovery is expected to be gradual.

Many analysts expect the bank to begin raising rates in the coming months after new tax increases take effect in January.   Continued...

 
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