Mexico: Banxico keeps holds rates amid subdued global growth and weak economic activity
July 12, 2013
At its 12 July monetary policy meeting, the Central Bank (Banxico) left the overnight target interest rate unchanged at 4.00%, a decision in line with market expectations. The Bank last adjusted interest rates at its 8 March meeting, when monetary authorities decided to cut the main monetary policy rate by 50 basis points.
In the accompanying statement, Banxico stressed that downside risks to global economic growth persist. In addition, more recent data confirm that the weakness in Mexican economic activity accentuated in the second quarter of this year. Regarding price developments, the Central Bank argued that inflation is easing and acknowledged that inflationary pressures will fade in the coming months.
Moreover, monetary officials noted that, given expectations of a significant change in U.S. monetary policy, the national currency weakened notably in recent weeks and long-term interest rates rose significantly. However, the Bank stated that the depreciation of the peso will not spur any inflationary pressures going forward. In fact, Banxico projects annual consumer prices to fall to between 3% and 4% in both the third and final quarter of the year.
Finally, the Bank highlighted that its current monetary policy stance is consistent with a scenario of low inflationary pressures and subdued economic growth. That said, monetary authorities will remain vigilant on the evolution of the monetary policy stance relative to that of other economies, particularly the United States. The next monetary policy is scheduled for 6 September.
LatinFocus Consensus Forecast panellists currently expect the Bank to stay put this year and leave interest rates at 4.00%. For next year, most panellists expect Banxico to tighten the reins, resulting in a 4.04% year-end projection
Author: Ricardo Aceves, Senior Economist