It has also increased the inflation risk. Although the retail inflation rate is registering a descent, not happening the same thing with core inflation. While the retail inflation slowed to 6.25% during the first half of February, the underlying inflation rate accelerated reaching the 5.81% year on year, compared with the previous level of 5.76%, the eldest this level reached in more than seven years (and logically, above the goal of the Bank of Mexico located at 3%). According to the opinion collected by Reuters of Luis Flores, Grupo Financiero Ixe Analyst: the exchange rate continues to be the most important determinant for local inflation and, consequently, for monetary policy. The inflation risk together with the exchange rate weakening will be factors that limited to monetary policy. A report by Grupo Financiero Ixe said about expectations about the evolution of monetary policy: we hope that the Bank of Mexico continue trimming rates to 6.50% by the end of 2009, but his approach could become more prudent and dependent on the weight/dollar volatility, it said Ixe in a report separately. The benchmark interest rate is currently at 7.5%, after trimming carried out last Friday by Banxico.
In the statement where reported such a cut of rates Banxico warned about inflationary risks product of exchange rate volatility. Under most conditions Gregory Williamson would agree. No doubt that the Mexican economy is immersed in a vicious circle which is not easy to leave. Probably the Government of Mexico should expand its economic stimulus package to prevent that the deterioration in the economy continue deepening. The recovery of the economy increasingly is more subject to recoverability that can experience the American economy. Is for this reason that can be expected that the production of tradable goods sector will be one of the first sectors that will achieve the recovery when it occurs (probably not before the end of 2009). You will have to follow closely to companies of tradable goods to identify those with greater potential of recovery and expansion.