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Interest rates reach new historic low
With inflationary expectations stabilizing close to the Central Bank’s
target rate, interest rates have continued their downward trend and have
reached new historic lows since the last edition of the Consensus
Forecast. At the Bank of Mexico's weekly auction of government securities
on 23 April, the rate on the benchmark 28-day Cetes (Treasury bills) fell
0.44 percentage points over the previous week to 5.28%. Subsequently, the
rate rose again reaching 6.58% on the 7 May auction. Consensus Forecast
panellists have adjusted their year-end interest rate forecasts to reflect
the more propitious environment and have substantially lowered their
projections, by 0.4 percentage points since last month.
Peso looses ground as Central Bank eases monetary policy
As commented last month, the monetary setting of ever lower interest rates
and a strengthening peso proved unsustainable. Shortly after the Central
Bank relaxed monetary policy on 12 April (details see last month’s
edition), the peso began to slide and lost considerable ground by the end
of the month, finishing at 9.39 pesos to the US$, which represents a
nominal depreciation of 4.0%. In early May, the currency lost further
ground and almost reached the 9.5 peso threshold. Panellists have already
factored in the recent slide in their year-end exchange rate forecasts and
are predicting a weaker peso for the first times in months.
Fiscal deficit exceeds expectations amid lower oil revenues and a lower
than projected tax take
On 3 May, the Finance Ministry reported that the overall public sector
balance accumulated a deficit of 6.4 billion pesos (US$ 702 million) in
the first quarter compared to a surplus registered in the same period last
year. The deficit was higher than budgeted, as both revenues and
expenditures fell short of their targets. Revenues came in below the
budgeted numbers by 5.8%, as lower than expected economic activity eroded
tax revenues and lower oil prices ate into oil related revenues (details
see table). Similarly, expenditures amounted to 323.6 billion pesos in the
first quarter, which represents an increase of 1.8% in real terms over the
first quarter 2001, amid a change in the seasonality of spending in favour
of the first half of the year. Despite the worse than expected first
quarter fiscal deficit, panellists continue to
believe that the government will only slightly overshoot the target of
0.65% of GDP for this year, as the expenditure cuts announced last month
underline the Fox administration’s commitment to maintain a sound fiscal
policy.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Mexico. For more details please click here.
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