Mexico Monetary Policy October 2018

Mexico

Mexico: Banxico holds rates in October

October 4, 2018

At its 4 October monetary policy meeting, Banxico’s five-member board voted by a majority to hold the target rate at the nine-year high of 7.75%, in line with market expectations. All but one member of the board voted to keep rates unchanged, with a sole vote opting for a hike. The Bank has held rates at the high level since raising them in June in the run-up to the election.

The Bank’s decision was driven by upside risks to the inflation outlook. Rising interest rates in the United States has exerted pressures on emerging-market currencies, including the peso, while higher oil prices are also adding to inflationary pressures. That said, risks to the inflation outlook have eased somewhat since the previous meeting. A revamped NAFTA has been secured, while the Bank commented that unexpected rising inflation of recent months was largely the consequence of temporary shocks.

Looking ahead, the Bank commented that it will continue to keep a “prudent monetary policy stance” and track the evolution of the exchange rate closely. The FocusEconomics panel largely sees the Bank holding rates this year, before embarking on a cutting cycle in 2019. The end of the country’s election cycle and the new USMCA agreement should provide support for the peso and inflation is seen receding, providing space for monetary easing.

Mexico Interest Rate Forecast


Our panel of analysts expect the target rate to end the year at 7.80% and 2019 at 7.05%.


Author: Angela Bouzanis, Senior Economist

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