Mexico: Central Bank leaves interest rate unchanged
March 21, 2014
At its 21 March monetary policy meeting, the Central Bank (Banxico) decided to maintain the overnight target interest rate at 3.50%. The decision, which was in line with market expectations, followed similar conclusions at the Bank's previous meetings that took place in January and in December. The Central Bank stated that global economic activity continued to show signs of improving at the outset of this year and, on balance, the economic outlook for the global economy is still positive, although some downward risks persist. Domestically, the Bank underlined the deceleration in economic growth in the final quarter of 2013 and at the beginning of 2014. The Bank stated that growth in domestic demand is still lackluster, particularly in consumption and investment. As in its previous meeting's statement, Banxico acknowledged that although positive signs for employment are beginning to emerge, it recognized that a degree of slack still persists in both the labor market and the economy as a whole. Monetary authorities concluded that, so far, clear signs of a notorious improvement have not been observed while pointed out that they does not expect inflationary pressures arising from this performance. Regarding price developments, the Banxico stated that inflation spiked at the beginning of 2014. However, monetary authorities pointed out that the increase had been a one-time event as a result of an increase in fares and new taxes on a number of consumer goods. Consequently, the Central Bank underlined that these developments are temporary. Alonso Cervera, Chief Latin America Economist at Credit Suisse said: The central bank is comfortably on hold. This is occurring in a context of still tentative signs of a recovery and inflation in check after a temporary spike due to new taxes. LatinFocus Consensus Forecast panelists expected the overnight policy rate to end 2014 at 3.59%. For 2015, the majority of LatinFocus Consensus Forecast participants expect the Central Bank to tighten the reins and raise the overnight policy rate to an average Consensus of 4.32%.
Author: Ricardo Aceves, Senior Economist