Mexico: Central Bank leaves policy rate unchanged
October 31, 2014
Mexico’s Central Bank (Banxico) left the target for the overnight interest rate unchanged at 3.00% on 31 October, which was a decision expected by most market analysts. The Central Bank decided to leave the interest rate at its lowest level on record, stating that the risks for the inflation and economic outlook are balanced and unchanged from its previous monetary policy decision in September.
Monetary authorities said that within a context of slowing global economy activity together with high volatility in the currency markets and lower commodity prices, the Mexican economy performed relatively well. The Bank pointed out that economic activity showed signs of a moderate improvement in the third quarter, buttressed mainly by the external sector, yet it recognized that domestic demand also showed signs of gaining momentum. Nonetheless, monetary authorities also acknowledged that a certain degree of slack persists in the economy, but it is expected to be gradually reduced going forward. On consumer price developments, Banxico stated that demand-side inflation pressures remain contained and are expected to stay limited in the coming months. Consequently, inflation expectations for the economic agents are stable. Nevertheless, the Bank recognized that upside risks to the inflation trajectory in the near-term persist due to a weakening in the currency on the back of a sudden increase in volatility in global financial markets.
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 of 3.0% in the medium-term. The Bank added that it will closely monitor the evolution of the slack that persist in the economy, but also the impact of the structural reforms approved this year and withdrawal of monetary stimulus in the United States.
Author: Ricardo Aceves, Senior Economist