WRAPUP 1-Mexico holds rates steady, warns on factory output

* Mexico holds benchmark rate steady at 4.5 percent

* Cenbank warns U.S. slowdown could hit Mexican factories

* Economy grows 3.2 pct in 2nd qtr; shrinks 0.4 pct in
June

By Jason Lange and Patrick Rucker

MEXICO CITY, Aug 20 (BestGrowthStock) – Mexico’s central bank said
it will keep borrowing costs low to help the country recover
from recession and warned factory output could slow, while data
released on Friday showed an economic contraction in June.

The bank’s decision on Friday to keep its benchmark rate at
4.5 percent was widely anticipated, but its comments on growth
suggest policy-makers are in no hurry to follow other Latin
American countries like Brazil and Chile in raising interest
rates.

“(Mexico’s central bank) is now more concerned about the
impact of weaker U.S. demand on manufacturing,” said Pedro
Tuesta, an economist at 4Cast in Washington.

Mexico is limping back from its deepest recession since
1932 after its economy contracted 6.5 percent in 2009.

Growth this year has been erratic and mostly powered by
U.S. purchases of Mexican exports like cars and televisions.
Mexican consumer demand has been tepid, though the central bank
said on Friday it was showing signs of recovery.

While data from the national statistics agency showed gross
domestic product growth of 3.2 percent in the second quarter
from the previous period — the fastest rate since 1996 — it
also said the economy contracted 0.4 percent in June from May.
[ID:nN20134145]

At the same time, the agency revised downward its GDP
reading during the first quarter compared with the final
quarter of 2009. It said the economy shrank 0.6 percent during
the period, compared to the original reading that showed a 0.4
percent contraction.

Regarding the economy in the United States, which buys
about 80 percent of Mexican exports, the central bank said:
“Everything points to a economic slowdown going forward.”

“In Mexico, manufacturing output and exports continue to
grow at accelerated rates, but considering the U.S. outlook,
this growth could moderate,” the bank said in a statement.

In its statement, the central bank held its target for the
overnight bank lending rate (MXCBIR=ECI: ) at its lowest level
since policy-makers began targeting in January 2008.

Most economists think Mexico’s weak economy will keep the
central bank from raising interest rates before mid-2011.

“They are going to have to keep rates low for a good
while,” said IXE analyst Luis Flores.

The decision at the bank’s monthly policy review was
unanimously expected by 25 economists consulted in a Reuters
poll.
(Editing by W Simon)

WRAPUP 1-Mexico holds rates steady, warns on factory output