Mexico: Central Bank leaves interest rates unchanged
July 11, 2014
At its 11 July monetary policy meeting, the Mexican Central Bank (Banxico) decided to leave the target of the overnight interest rate unchanged at 3.00%, which was a decision that the markets had expected. The Bank’s decision follows the unexpected cut last month, when Banxico decided to lower interest rates from 3.50% to 3.00%, thus bringing the interest rate to its lowest level on record.
In its statement, the Central Bank pointed out that recent data hint that economic activity improved modestly in the second quarter, which was mainly underpinned by an improvement in the external sector. The Bank recognized, however, that growth in domestic demand is still sluggish and that the degree of slack in the economy was greater than expected. Consequently, the Bank expects that the output gap will remain negative until 2015.
In terms of price developments, the Central Bank underlined that, against a background of weak economic growth, inflationary pressures remain contained. Similar to previous statements, Banxico expects inflation to gradually return to its target of 3.0% by the beginning of 2015. Consequently, inflation expectations for the medium- and long-term remain stable. Moreover, the Bank highlighted that volatility in domestic and foreign financial markets remained low, following the previous rate cut.
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 did not signal that any additional rate cuts were likely this year.
Author: Ricardo Aceves, Senior Economist