UPDATE 2-Mexico central bank board divided over rate cut decision

viernes 20 de junio de 2014 12:46 GYT
 

(Adds policymakers' views in minutes, economist comment and market reaction)

MEXICO CITY, June 20 (Reuters) - Mexico's central bank split over the decision to cut interest rates earlier this month, but the majority said slack in the economy and the prospect of moderating inflation gave it room to lower borrowing costs, minutes showed on Friday.

Central bank board members voted 3-2 when it cut its benchmark interest rate by 50 basis points to a record low of 3.00 percent on June 6, surprising all 21 analysts polled by Reuters.

Latin America's No. 2 economy barely grew in the first quarter as a harsh winter dragged on growth in the United States, Mexico's top trading partner, while Mexican tax hikes hit domestic demand.

The majority noted that growth had been weaker-than-expected in the first quarter and some members said that slack could remain in the economy until 2016.

"Given the described economic conditions, convergence to the 3 percent target can be achieved in an efficient manner with a lower interest rate," the minutes said.

The majority wanted to communicate that they did not plan to further lower borrowing costs.

"That's a strong message and I think it will put an end to speculation that there could be further cuts," said Alonso Cervera, an economist at Credit Suisse.

Yields on Mexican interest rate swaps were little changed after the minutes. The market is not projecting any further cuts and is betting on a hike by mid-2015.   Continuación...