Mexican Central Bank Interest Rate Left at 3.75%

May 5, 2016

Officials are watching the peso very carefully.  Excessive depreciation could lift expected inflation and thus jeopardize the 3% inflation target.  When the peso was dropping sharply in February, the key interest rate was hiked 50 basis points on the 17th at an emergency meeting arranged just 13 days after monetary officials had decided not to change policy during their regularly scheduled policy meeting.  The central bank also lent intervention support at that time to the peso, and those steps ignited a strengthening period when about half of the peso’s year to date depreciation was reversed.  Peso slippage started again this month, and the official statement released today conceded that growth risks are skewed to the downside.  February’s rate increase was the second of the cycle.  An initial move in mid-December of 25 basis points was the first increase since 2008.  The rate was cut by 375 basis points during the first seven months of 2009, another percentage point between September 2013 and October 2014, and then held steady at 3.0% for the ensuing 14 months.  Today’s decision not to change policy had been predicted by most analysts.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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