Mexico: Central Bank stays put in April
April 25, 2014
At its 25 April monetary policy meeting, the Central Bank (Banxico) decided to leave the target for overnight interest rate at 3.50%. The decision was on par with market expectations.
In the accompanying statement, monetary authorities pointed out that the recovery in the global economy is on its way, albeit at a more moderate pace. The Bank underlined that in the United States, Mexico's main trading partner, recent data suggest that the economy has emerged from the winter soft patch and that it is gradually gaining momentum. Consequently, the Bank expects that the Federal Reserve will continue the gradual normalization of its monetary policy.
Banxico justified its decision to stay put against a backdrop of tepid domestic demand and noted that growth was disappointing in the first quarter. The Central Bank was, however, more optimistic regarding the external sector. The Bank stated that inflationary pressures have been temporary, as the spike in inflation observed in January has receded. As a result, monetary authorities revised down their inflation expectations for this year, while long-term expectations are still stable.
LatinFocus Consensus Forecast panelists expect 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