Mexico: Central Bank unexpectedly cuts interest rates
September 6, 2013
At its 6 September monetary policy meeting, the Central Bank (Banxico) decided to cut the overnight target interest rate by 25 basis points to 3.75%. The move defied market expectations, which saw the Central Bank staying put. The Central Bank has cut the overnight interest rate by a total of 75 basis points in 2013 to date.
Monetary authorities argued that economic growth has slowed more than expected, due to both domestic and external factors. Officials noted that economic activity deteriorated more than expected in the second quarter and thus expect a great amount of slack in the economy for a prolonged period. Consequently, the risks to economic growth have deepened significantly compared to the Bank's previous forecasts. Regarding price developments, Banxico stated that inflation has receded faster that expected and that the absence of demand-side pressures suggests that inflation will not increase in the coming months. Therefore the Bank concluded that inflation expectations for this year remain well anchored.
LatinFocus Consensus Forecast panelists currently expect the Bank to stay put this year, leaving interest rates at 4.00%. For next year, most panelists expect Banxico to tighten the reins, resulting in a 4.06% year-end projection.
Author: Ricardo Aceves, Senior Economist