Mexico inflation drop this year

MEXICO CITY: Economists sharply lowered forecasts for Mexican inflation this year, potentially giving the central bank more room to help the economy by leaving interest rates low, a poll showed on Wednesday.

The monthly survey carried out by the central bank in late May showed consumer prices were seen rising 3.67 percent this year, down from a forecast of 3.87 percent in the April poll.

Mexico's economy is limping back from a deep economic downturn and unemployment remains well above pre-recession levels.

The May poll showed analysts' forecasts for economic growth this year was steady at 4.37 percent.

That broke a five-month streak of rising growth forecasts. Analysts lowered their outlook for growth in the United States, Mexico's main trade partner.

The central bank left its benchmark rate at a record low of 4.5 percent last week to help the stumbling economy. Growth slowed sharply in the first quarter as factories downshifted on a weaker outlook for exports to the United States.

Analysts polled by Reuters last week expect a 25 basis point hike in early 2012, and investors are also betting on a January rate rise, according to yields in Mexico's market for interest rate futures.

Mexico's economy has been the laggard of Latin America in rebounding from recession. Brazil, Chile and Peru have all hikes interest rates several times to cool their faster-growing economies.

Copyright Reuters, 2011