How ironic. Just after Mexico’s annual three-day bargain weekend known as the “buen fin” racked up sales of 160bn pesos ($12m) , retail sales data for September was published – and they were terrible.
The 4 per cent drop in retail sales in September (and a 0.4 per cent month-on-month fall) comes just as the economy was showing tentative green shoots after a year in which growth is now expected to struggle to top 1 per cent – less than a third of the government’s heady early predictions.
Good news for the Mexican government.
Forget worries slowing growth or the impact of the US shutdown and fears of a debt ceiling Armageddon. Mexico is finding it cheaper and cheaper to borrow.
Snip. That’s likely to be the sound in Mexico on October 25.
If the market consensus is right – in the light of the Fed’s decision not to taper and sluggish domestic growth – Mexico’s central bank is now widely expected to trim another 25 basis points from its key interest rate after its September 6 surprise cut.
The trickier question is: will it be snip, or snip, snip – one cut (to 3.5 per cent), or a cut followed by another cut on December 6?
Charity begins at home. That’s the message from Mexico’s central bank, which on Friday cut its policy interest rate by 25 basis points to 3.75 per cent. Few analysts saw the cut coming, despite the economy’s lurch to its first contraction in four years in the second quarter this year.
Many in the market had expected Banxico to hold fire until there was more clarity on the US Federal Reserve’s expected tapering of its stimulus, especially given the peso’s recent weakening against the dollar.
The decision on Friday by Mexico’s central bank to hold benchmark interest rates at 4 per cent came as no surprise.
But the same day release of two economic indicators – one in Mexico and the other in the US – has fueled speculations that the central bank could cut rates sooner rather than later.
Mexico’s central bank on Friday held its benchmark rate at 4 per cent – brushing off concerns that the economy could be losing steam.
Growth in industrial output has slowed and retail sales dropped in February by the most in more than three years. On the other hand, capital has flooded in, the peso has surged by 6 per cent this year and inflation hit 4.7 per cent early this month, though Agustín Carstens, the central bank governor, believes it will drop to not much more than 3 per cent by the end of the year.
Not a whole bucket of cold water, but at least a splash or two was administered on Friday to cool growing expectations on the near future of Mexico’s economy.
Most, but by no means all, analysts were surprised by a central bank decision to reduce its benchmark interest rate by half a percentage point to its lowest ever, 4 per cent. The cut was the first since 2009.
The new year is supposed to bring new things and so it was with Mexico’s central bank, which surprised analysts on Friday by saying that it could cut interest rates in the coming months in a scenario of lower growth and inflation, which it is now suggesting could be the case.
There are at least two conclusions to draw from Mexico’s inflation, which edged up to 4.34 per cent over the past 12 months to June compared with 3.85 per cent to May.
The first is that in spite of the increase – June was the second consecutive month that overall prices went up – things still look to be well under control. The second is that the latest data suggest that the central bank will continue to keep interest rates on hold at 4.5 per cent.
The sense of uncertainty in the global economy is palpable, and rightly so. China is slowing – no one is sure by how much; Europe’s sovereign debt crisis is going from bad to worse – but no one knows how much worse it will get; and the US is still just muddling through.
So what’s a central banker in Latin America to do? Judging by the raft of rates decisions and minutes out this week – many of the region’s policy makers are happy taking the wait-and-see approach.