Mexico: Banxico stays on hold in May
May 13, 2021
On 13 May, the Governing Board of the Bank of Mexico (Banxico) unanimously decided to keep the target for the overnight interbank interest rate at 4.00%, marking the second consecutive hold after a 25 basis-point rate cut earlier in the year.
The decision was likely driven by the desire to keep price pressures in check, as both headline and core inflation have been above the Bank’s 3.0% target in recent months, with headline inflation reaching a multi-year high in April. Moreover, Banxico now expects short-term inflation to be above the projections made in its latest quarterly report. As such, additional stimulus would have run the risk of further stoking price pressures. However, a rate hike was not warranted either, given that domestic economic conditions are still fragile and the Bank still sees inflation converging to its target in 2022.
In its statement, Banxico struck a neutral tone, and did not give explicit guidance on the future direction of the policy rate. The Consensus is for rates to end this year at broadly their current level, although there is discrepancy among panelists, with some still seeing further cuts and others now expecting hikes in light of elevated inflation.
The next monetary policy meeting is scheduled for 24 June.
Author: Oliver Reynolds, Economist