Temporary Truce in Inflation Battle for Mexico and Colombia

Sources:
Bloomberg - Mexico Holds Rates on Signs of Slowing US Growth
Bloomberg - Colombia Bank Keeps Rate at 9.25% as Inflation Slows

Mexico and Colombia both kept their benchmark interest rates unchanged this week, at 7.25% and 9.25%, respectively. Both countries maintained their current rates despite a continuing battle and preoccupation with excessive inflation.

Mexico’s inflationary rate in August was a little over 4 percent, slightly greater than the target rate of 2-4 percent. However, high food and fuel prices have threatened the central bank with higher inflationary rates and the probable need to raise interest rates before the end of 2007. Mexico’s decision comes in conjunction with a slowing United States economy and the cutting of the federal funds rate last week by the U.S. Federal Reserve.

Meanwhile, Colombia’s central bank also held its interest rate unchanged at 9.25%. The central bank has been trying to stem inflation that was at 6.26% annually in April. The inaction by the central bank is a reprieve from the nine quarter-point rate increases that have occurred in Colombia in 2007. As in Mexico, the poor U.S. credit market contributed to the Colombian central bank’s decision not to raise rates. The chief of Colombia’s central bank, Jose Dario Uribe, said that the U.S. mortgage crisis could affect Colombian export prices, demand, and access to international capital markets.

Discussion:

1. In addition to interest rate increases, what are other economic means available to countries to slow down their inflation?