Every CB on the planet is at the damn if they do, damned if they don't juncture. It is interesting that many aren't trying to hide the inflation though, like some people:
Reuters
Mexico cenbank faces tough choice on inflation
Tuesday February 17, 1:47 pm ET
MEXICO CITY, Feb 17 (Reuters) - Mexico's central bank has to choose between keeping a tight rein on inflation or protecting a still-fragile economic recovery at its bimonthly review of monetary policy later this week, analysts said.
Annualized inflation ran at 4.2 percent in January, above Banco de Mexico's target range of between 2 and 4 percent, leading most traders in Mexican financial markets to expect at least a minor tightening of monetary policy on Friday.
However, many economists warn that higher interest rates could strain the economy just as it is showing signs of life following three years of stagnant growth or recession.
Price rises during January were caused largely by seasonal factors, not economic growth, so they say the central bank could hold off on tightening monetary policy.
"A policy tightening would likely cause the peso to appreciate. That would further impair the economy's international competitiveness, which is anyway jeopardized by the failure to push through structural reforms," investment bank J.P. Morgan said in a report.
Mexico's peso and debt markets are expected to be volatile this week as investors debate the outcome.
Seven out of 10 traders consulted by Reuters said they expect the Central Bank to increase its "short," which would drain more liquidity from the secondary money market. While raising the short helps to quell inflation, it also tends to force up interest rates and dampen consumer spending.
The short -- the central bank's main tool for keeping inflation in check -- has not been modified since March of last year. It is currently at 25 million pesos ($2.3 million) per day, a level already considered restrictive by traders.
"We expect the 'short' level will be increased from 25 to 30 million pesos," Mexican bank Banamex said in a report.
Still, others doubt the central bank will move to tighten policy yet.
"I don't think it will move (the short) this Friday. I think it will wait to see the next inflation figures," one money market trader said.
The central bank has said it intends to keep inflation within its annualized goal on a month-by-month basis but has also acknowledged that inflation would move beyond the target range in early 2004 since merchants usually raise prices after Christmas. ($1 = 10.93 pesos) |
