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Mexico Monetary Policy June 2023

Mexico: Banxico leaves policy rate unchanged in June

At its meeting on 22 June, the Governing Board of the Bank of Mexico (Banxico) left the overnight interbank interest rate target at 11.25%, following a similar hold in May.

The decision to hold followed 575 basis points of rate hikes since January 2022, and came against a backdrop of peso appreciation and declining headline and core inflation which rendered further tightening unnecessary. On the flipside, with headline inflation still close to double the Central Bank’s 3.0% target and long-term inflation expectations also above target, it was premature to begin cutting rates.

Concerning forward guidance, the Bank repeated its intention to “maintain the reference rate at its current level for an extended period”. Most panelists see Banxico starting to loosen its monetary stance in Q4 2023, though some panelists see rates unchanged through year-end.

On the outlook, Itau Unibanco analysts said:

“Our end of year policy rate forecast stands at 10.75%, which implies a 25-bp rate cut in each of the last two meetings of the year (November and December).  In our view, a still concerned Board with inflation and on-going Fed rate hikes mean policy rate cuts are unlikely in the short-term.”

In contrast, EIU analysts are more hawkish:

“We expect the Banco de México (Banxico, the central bank) to hold its policy rate at 11.25%, where it has been since a 25-basis-point rise in March, until early 2024.”

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