Mexico: Banxico stays put in last meeting of the year
December 5, 2014
The Mexican Central Bank (Banxico) decided to maintain interest rates at the lowest level on record in its last scheduled monetary policy meeting of the year. Monetary authorities left the target for the overnight interest rate unchanged at 3.00% on 5 December, which was a decision broadly expected by the markets.
In its statement, Banxico indicated that growth in economic activity is timid, particularly that of private consumption in which growth continues to be tepid. The Central Bank commented that the positive effects that an increase in government spending was expected to have on economic growth remain to be seen. The Bank did point out, however, that economic conditions in the United States continue to support exports and investment in Mexico. Nevertheless, monetary authorities warned that global economic developments are less favorable now compared to the assessment they made at the previous meeting that took place in October, and that these developments may have a negative impact on Mexico’s economy. The Bank added that a certain degree of slack still persists and also stated that, along with less favorable global economic conditions, the social unrest that has recently taken place within the country is likely to undermine economic growth.
Regarding price developments, the Bank stated that although inflation has risen in recent months, the evolution of consumer prices has developed as predicted. In addition, inflation expectations for the medium and long terms remain stable. Consequently, the Bank reaffirmed that it expects inflation to close the year at around 4.0%. The Bank also confirmed that it foresees inflation falling below 4.0% at the beginning of 2015 and expects it to hover around 3.0% by mid-2015.
The Central Bank concluded that its decision to keep the monetary policy rate unchanged is consistent with its expectation of inflation converging at its target of 3.0% in the medium term. Monetary authorities added that they will closely monitor the performance of inflation, as well as the determinants and expectations for the evolution of inflation. They also stated that they will, in particular monitor the evolution of the slack that persist in the economy.
Author: Ricardo Aceves, Senior Economist