World should gird for higher US rates: Mexico central bank official

SAO PAULO: Emerging and developed economies need to be ready for US interest rates to rise eventually and tighten financial conditions worldwide, Mexico's central bank deputy governor Manuel Ramos-Francia said on Monday.

"What is probably very certain is that interest rates in the US are going up, and interest rates in the rest of the world are going up," Ramos-Francia said at an event sponsored by Credit Suisse in Sao Paulo.

"The 10-year T-bill rate right now is a little bit below 3 percent this means that T-bill rates have at least 200-250 bps to go further up" Ramos-Francia did not elaborate on the strategy of Mexico's central bank, which on Friday kept interest rates on hold at a record low of 3.50 percent, even though inflation breached the bank's target ceiling, as it seeks to underpin a nascent economic recovery.

"Mexico is trying to have this process of increase in interest rates as orderly as possible," Ramos-Francia said. Speaking to an audience comprised mostly of Brazilian executives and investors, Ramos-Francia stressed the importance of the recent overhaul in Mexico's oil sector, which he said will be key in attracting foreign investment and making Mexico more competitive.

"Mexico cannot afford not to explore shale gas in our huge shale and oil fields in the north," he said. "We have to do it very quickly, because the US is doing it."

The opening up of Mexico's ailing, long-shuttered energy sector is widely seen as the most important reform passed by Mexican President Enrique Pena Nieto, who also pushed a series of reforms though Congress last year including overhauls to telecommunications, education and the banking sector.

Mexico's crude output peaked at 3.4 million barrels per day in 2004 and has since fallen by more than a quarter.

The government says the overhaul, which is still being definitively mapped out but would allow private investors to pump money into the oil, gas and electricity sectors, is vital to boosting growth that has long lagged behind regional peers.

Pena Nieto's administration is hoping Congress will approve the secondary laws, which will give pointers as to how lucrative a range of new contracts to be offered to oil majors will be, by the end of this legislative period. The period began last week and runs through the end of April.