The Board of Governors of Banco de Mexico has decided to hold at 4.5 percent the target for the interbank one-day interest rate. In recent weeks the external environment continued to deteriorate significantly, as reflected in a decline in world economic growth forecasts for 2011 and 2012. In the United States, structural fiscal problems prevail, unemployment, indebtedness of households and the housing market, so it is anticipated that the sluggishness of economic activity will continue in the coming quarters. At its last meeting, the Federal Reserve indicated it will keep a monetary laxity at least until mid-2013 and will perform a new easing program, through the purchase of instruments for long-term debt financed by the sale of instruments short-term debt. In this context, long-term interest rates in the economy continued to decline to record lows. In Europe, the sharpening of the sovereign debt crisis and concerns about the health of financial institutions have worsened economic growth expectations and generated considerable turbulence in international financial markets. This turbulence led to a massive reallocation of assets to safe havens, such as U.S. Treasury instruments, the Japanese yen, Swiss franc and gold. In this environment, the European Central Bank purchased on the secondary market the sovereign debt of some countries in the region, introduced measures to provide liquidity to financial institutions and disrupted the withdrawal of stimulus money. The prospect of slower global economic growth has led to further reductions in raw material prices; both factors have led to the expectation that inflation in advanced countries will begin to decrease. In response, several central banks in advanced economies have announced additional monetary easing measures. In emerging economies they continue to moderate the pace of economic growth. Despite the uncertainty in international financial markets reflected in a depreciation of currencies, the prospects of a slowdown in economic activity have led central banks to stop the withdrawal of monetary stimulus and even, in some cases, reducing their benchmark interest rate. In Mexico, production activity is a positive trend but the pace of growth has lost some momentum. In particular, exports, imports and industrial production recorded a decline. Growth prospects have been revised downwards, mainly in light of the deteriorating U.S. economy, which implies that the output gap closes at a rate even lower than expected. Furthermore, various indicators of labor market, credit and external sector continued to show slack. Annual headline inflation and its core and non-core components continue to show a favorable progress. In particular, variations in the underlying sub-index of services, which best reflects domestic factors affecting inflation, are at historically low rates. Among the factors that have contributed to the favorable inflation performance are: the downward trend in unit costs of labor, the fading of the impact of tax changes last year and a significant reduction in agricultural prices. In recent weeks there was a significant depreciation of the currency adjustment induced by the portfolio in international financial markets that affected most of the currencies of emerging economies. However, inflation expectations have hardly been affected, which is consistent with the expectation that in the medium term the price of the domestic currency would be anchored by sound fundamentals of the Mexican economy and the low transfer exchange rate movements to inflation that has been observed in recent years in Mexico. In any case, an adverse dynamic in the exchange rate and the possibility of a rebound in some raw material prices prevail as a risk for rising inflation. The downside risks are the possibility of further weakening of external and domestic demand and that the decline in international prices of raw materials is higher than expected. Considering the above, it is expected that the remainder of 2011 and during 2012 the headline and core inflation will be consistent with the trajectory published in the latest Inflation Report. Thus, it is estimated that the country’s balance of risks for economic growth has deteriorated, while inflation showed a slight improvement. The Governing Board believes that the current stance of monetary policy is conducive to achieving the goal of permanent 3 percent inflation, so it has decided to maintain unchanged the target for the interbank interest rate one day. However, it remains vigilant of the global economic growth outlook and its possible implications for the Mexican economy, which, in a context of monetary laxity in major advanced countries, could eventually lead to an easing of the monetary policy. In any case, the Board will monitor the behavior of the determinants of inflation, and in particular the exchange rate, which might warn about widespread pressures on prices to allow for a timely adjustment of the monetary stance to ensure at all times the convergence of inflation to a permanent goal of 3 percent.

The main 30-share BSE index was up 0.8 percent at 16,673 points at 9:16 a.m. (0346 GMT), with all but six of its components in the positive territory.The 50-share NSE index was trading up 0.8 percent at 5,015 points.