Mexico's central bank warned that growth could begin to pressure inflation around mid-year even as it kept its benchmark interest rate low to help the economy. The central bank on Friday held its target rate for overnight lending between banks at 4.5 percent, the lowest since policymakers began targeting the rate in January 2008.
The tone of the statement did not lead investors to significantly change bets on the timing of future interest rate hikes, which are expected to begin early next year. The central bank said strong exports and growth in private spending meant the economy would likely start fuelling inflation soon.
"It is foreseeable that the output gap continues to close and turn positive around the middle of this year," the central bank said in a statement accompanying the rate decision. An output gap means an economy is underperforming, helping central banks to keep inflation under control. Mexico's policymakers emphasised that high unemployment and weak credit growth were still keeping slack in the economy.
"The central bank is definitely saying in its statement that it isn't in a rush to change monetary policy," said Barclays Capital economist Jimena Zuniga. Mexico has lagged its regional peers in terms of growth after suffering one of the world's sharpest economic contractions in 2009. Brazil and Chile have hiked interest rates repeatedly over the last year. The decision at the bank's monthly policy review was unanimously expected by 21 economists polled by Reuters. The benchmark rate has been held at 4.5 percent since July 2009.