Global weakness to persist for years - Mexico's Carstens

SINGAPORE Tue Feb 5, 2013 8:00am IST

Euro banknotes are seen in this picture illustration taken in Prague January 21, 2013. REUTERS/David W Cerny

Euro banknotes are seen in this picture illustration taken in Prague January 21, 2013.

Credit: Reuters/David W Cerny

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SINGAPORE (Reuters) - Weakness in the global economy will persist for years and emerging markets may face an exodus of capital when major economies begin to reverse accommodative monetary policy, Mexico's central bank governor Agustin Carstens said on Tuesday.

"We should be prepared to further face an environment where weaknesses and vulnerabilities persist for a while - and I am talking years, not just months," Carstens said in a speech in Singapore.

He said a "perfect storm" might be forming in emerging markets as a result of massive capital flows going into some emerging economies as well as the strong advanced economies.

"This could lead to bubbles, characterised by asset mispricing and then face a reversal in flows as the major advanced economies start exiting their accommodative monetary policy stance," Carstens said.

Banco de Mexico board members unanimously decided to keep the benchmark interest rate steady at 4.5 percent at their monetary policy meeting last month, when they surprised analysts by hinting they might lower rates in future.

Analysts polled by Reuters expect Mexico's economy will grow by 3.55 percent this year, with inflation running at 3.67 percent.

(Reporting by Kevin Lim; Editing by John O'Callaghan)

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