Mexico's stock exchange building is seen in Mexico City

Mexico central bank cuts growth outlook for 2015, 2016

By Joanna Zuckerman Bernstein

MEXICO CITY (Reuters) – Mexico’s central bank lowered its growth outlook for this year and next on Tuesday, flagging concerns about the sluggish economy, but the bank’s governor Agustin Carstens signaled further rate cuts were unlikely.

The central bank said it now sees growth in 2015 between 2.0-3.0 percent, down from the 2.5-3.5 percent in its last report, pointing to weak export growth to the United States, a drop in domestic oil output and still sluggish consumer demand.

The bank also lowered its 2016 forecast to between 2.5-3.5 percent from 2.9-3.9 percent. But the gloomier growth outlook does not mean borrowing costs are set to drop, Carstens said.

“The likeliest thing without a doubt is that we have to raise rates,” Carstens said. “A scenario in which the board would consider reducing interest rates looks pretty remote.”

Fears that an imminent U.S. rate hike may push investors to dump emerging market assets, as well as a slump in oil prices, have hammered Mexico’s peso, which sank to a record low against the dollar in March.

Analysts polled by Reuters now expect the U.S. central bank to tighten monetary policy in the third quarter, after disappointing first-quarter U.S. growth.

The Banco de Mexico said it saw inflation slightly below its 3 percent target in the second half of the year.

Mexico’s annual inflation rate eased in April to just above the central bank’s target.

Mexico’s central bank held its benchmark interest rate at a record low of 3 percent last month, and is expected to hike rates around the time the U.S. Federal Reserve lifts borrowing costs.

Carstens said policymakers would not hesitate to raise interest rates if a recent slump in the peso begins to hit inflation expectations.

But he said there was no sign yet that the peso’s losses were spurring widespread price pressures, adding that Mexico’s currency commission could unveil additional rules-bases intervention tools to support the currency if needed.

Analysts polled by the central bank expect Latin America’s No. 2 economy to grow around 2.9 percent this year after a 2.1 percent expansion last year, hit by weak consumer demand.

Mexico’s statistics agency will release first-quarter growth data on Thursday at 8:00 AM.)

(Additonal reporting by Michael O’Boyle, Alexandra Alper, and Luis Rojas; Editing by Meredith Mazzilli)


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