Mexico, Colombia Both Hold the Line on Interest Rates

From Staff Reports

Mexico's central bank on Friday kept its benchmark interest rate unchanged at 7.25% for a fifth-straight month – but signaled that it is prepared to raise borrowing costs if food and energy costs don't drop back.

Colombia's central bank on Friday held its benchmark overnight interbank rate unchanged at 9.25% for a second month as that nation's policymakers bet that a series of nine quarter-point increases over the past year will be enough to restrict inflation.

In Mexico, the five-member central bank board maintained the "restrictive bias" introduced in May after deciding to hold rates at the 7.25% level. Unfortunately, a new fuel tax, and rising wheat and dairy prices caused the inflation outlook to worsen, the Mexican central bank said. Mexican policymakers are trying to keep inflation in the target range of 2% to 4%. Banco de Mexico is planning to revise and publish new inflation forecasts next month.

In Colombia, headway by the administration of President Alvaro Uribe in the four- decade battle against the country's illegal armed groups and drug cartels has boosted the confidence of both consumers and investors alike – causing the country's economic growth to a rate as much as 7.7% this year. Growth pushed up the inflation rate to 6.26% in April, the fastest pace since 2004. The average inflation rate over the 12 months ended in August as a much-lower 5.22%.

"The solution to the mortgage crisis in the U.S. may be slower and have a greater effect on world economic growth than previously thought. In Colombia that could affect demand, export prices and access to international capital markets," Colombia central bank leader Jose Dario Uribe told reporters at a gathering in Bogotá.

News and Related Story Links:

• Bloomberg News:
  Mexico Holds Rate on Signs of Slowing U.S. Growth.

• Bloomberg News:
  Colombia Bank Keeps Rate at 9.25% as Inflation Slows.