Mexico: Central Bank keeps interest rates at record low
September 5, 2014
The Central Bank (Banxico) decided to leave the target of the interbank interest rate unchanged at 3.00% at its 5 September monetary policy. Banxico’s decision was in line with market expectations and came after the Bank had cut rates four times in the last 19 months. The interest rate is still at its lowest level on record.
The Central Bank pointed out that economic growth improved notably in the second quarter, buttressed mainly by the external sector, while domestic demand showed a slight improvement. Nevertheless, the Central Bank recognized that a degree of slack persists in the economy, but it is expected to be gradually reduced going forward. Consequently, the Bank stated that it does not expect demand-side inflation pressures to appear in the coming quarters.
In terms of price developments, Banxico underlined that inflation has risen in recent months, but acknowledged that the increase was due to an unexpected increase in prices for agricultural products. However, the Bank said that core inflation has stabilized in recent months and thus inflation expectations remain stable for the medium-term. Banxico expects inflation to hover around 4.0% by the end of this year and to return to its target of 3.0% by the end of 2015.
The Central Bank concluded that its decision to keep the monetary policy rate unchanged is consistent with its expectation that inflation will converge at its inflation target in the medium-term, while the monetary policy stance will support economic growth. The Bank added that it will closely monitor the withdrawal of monetary stimulus in the United States.
Author: Ricardo Aceves, Senior Economist