Mexico: Central Bank holds rates but returns to dovish tone
January 18, 2013
At its 18 January meeting, the Central Bank (Banxico) decided to leave the monetary policy rate unchanged at 4.50%, in a decision in line with expectations. The Bank has refrained from adjusting interest rates since July 2009.
That said, the Bank unexpectedly changed its tone from broadly neutral to rather dovish. In its press release, Banxico highlighted the slowdown in domestic economic activity resulting from subdued growth in the United States and Europe, which has prompted a significant deceleration in exports. Moreover, monetary authorities noted the downward inflation trend seen in the final months of 2012 and reaffirmed their expectation of inflation moving close to the permanent target of 3% this year.
Against this backdrop, the Bank stated that, should the favourable inflation environment continue, a reduction of interest rates might be appropriate in order to contribute to the adjustment of the economy to "a situation of lower economic growth and lower inflation".