Mexico hints at cut on signs of slowdown

The central bank's benchmark target for the overnight rate remains at 8.25%, a three-year high. But the institution's post-meeting statement was more dovish than in previous months, stressing the downside risks to growth.

"The strong recession already impacting industrialised countries, particularly the United States, is negatively impacting Mexican economic activity," the central bank said. "The most recent data on exports, consumption and wages suggests the risk of a slowdown has risen."

About 85% of Mexico's manufacturing exports are to the United States. Remittance flows, which in 2007 accounted for 2.69% of GDP have slid on the back of the slump in the US construction industry.

The central bank noted that the financial crisis had continued to intensify and that it had acquired a global dimension. The impact of credit restrictions in global markets on emerging economies had been "particularly intense", the central bank said.

At 5.78% inflation is still well above the central bank's 3% target. But the central bank said it still expected its inflation forecasts for 2009, which show price growth falling to between 3.5% and 4%, to hold. Given that such a level would fall within the inflation target band of between 2% and 4%, this would imply that the central bank feels there may be room to loosen in the months ahead.

Click here to read the central bank's statement (available in Spanish only)