Mexico: Central Bank leaves interest rate unchanged
January 31, 2014
At its 31 January monetary policy meeting, Mexico's Central Bank (Banxico) decided to leave the overnight target interest at 3.50%. The decision, which the markets had expected, followed a similar decision at the Bank's previous meeting that took place in December.
The Central Bank pointed out that economic activity is gradually improving, mainly due to favorable conditions in the external sector and signs of a gradual improvement in domestic demand. Although Banxico acknowledged that positive signs for employment are beginning to emerge, it recognizes that a degree of slack still persists in both the labor market and the economy as a whole.
Regarding price developments, the Bank stated that inflation spiked at the end of 2013 and remained high during the first 15 days of January this year. Monetary authorities pointed out, however, that the price increases reflect hikes in public transport fares and new taxes on a number of consumer goods combined with a seasonal-related increase in food prices. Consequently, the Central Bank underlined that these developments are temporary because they affect a limited number of goods, and thus the Bank does not see a generalized increase in prices for other goods going forward.
Banxico concluded that inflation expectations for 2014 have increased, while those for 2015 remain stable. 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