Mexico: Banxico stays put in latest meeting
December 6, 2013
At its 6 December monetary policy meeting Mexico's Central Bank (Banxico) decided to maintain the overnight target interest at 3.50%. The move, which was on par with market expectations, follows a 25-basis-point cut at the Bank's previous meeting. The Central Bank has cut the overnight interest rate by a total of 100 basis points over the course of 2013.
Monetary authorities stated that economic activity expanded in the third quarter, which was mainly due to an improvement in the external sector, while domestic demand has remained subdued. Nevertheless, the Central Bank recognized that there is still a considerable degree of slack in the labor market and in the economy as a whole. Regarding price developments, monetary authorities pointed out that inflation continues to evolve positively and is hovering around 3.5%. In addition, officials underlined that core inflation remains at historically low levels.
The Bank concluded that inflation expectations for 2014 increased slightly as economic agents are integrating the possible impact of the recently-approved tax law onto some prices. Moreover, the Bank stated that inflation expectations in the medium- to long-term remain stable.
The Central Bank expects that inflation will end this year at 3.5%. The Bank projects that inflation will hover around 3.5% through 2014 and that it will move toward the long-term target of 3.0% in 2015. The majority of LatinFocus Consensus Forecast panelists expected the overnight policy rate to end 2013 at 3.50%. The majority of analysts expect the Central Bank to maintain the main monetary policy rate at 3.50% at the end of 2014, with a Consensus average of 3.61%.
Author: Ricardo Aceves, Senior Economist