Mexico: Banxico turns dovish and is likely to remain on hold this year
August 26, 2011
At its 26 August policy meeting, the Central Bank (Banxico) voted to leave the policy rate unchanged at the current record-low of 4.50%. The decision was anticipated by the market and followed the United States Federal Reserve's commitment to maintain exceptionally low levels for the federal funds rate at least through mid-2013. In Mexico, interest rates have been unchanged since July 2009. The Bank acknowledged that the external environment has deteriorated significantly amid lacklustre growth in the U.S. and the looming debt crisis in Europe. Moreover, monetary authorities pointed out that economic activity is losing some dynamism, while inflation continues to develop favourably, close to the permanent target of 3%. Against this backdrop, the Banxico stressed that if economic or financial developments should result in an unnecessary tightening of the monetary policy, the Board will consider on the convenience of easing it, opening the way for interest rate cuts going forward.
Author: Ricardo Aceves, Senior Economist