Bank of Mexico Votes Unanimously to Keep 7.0% Interest Rate

August 10, 2017

The Trump-driven plunge of the peso in 2016 lifted Mexican inflation and elicited six 50-basis point interest rate hikes and four increases of 25 basis points starting in December 2015 and most recently in June of this year. The final three increases were by 25 basis points. according to a released statement from the Bank of Mexico, this progressive tightening is reaping desired results. Interest rate differentials with the United States are attractive for Mexican assets. The peso has recovered considerable ground is been more stable. GDP last quarter grew faster than expected, and growth risks are more positive than before. Inflationary momentum is slowing. Inflation expectations reflect a belief that the rise in inflation will be mostly transitory. But officials are also under no illusion that even with progress in enacting structural reforms, Mexico is in a challenging period with a more unreliable northern neighbor. “Given the various risks that are still present, the Board is vigilant
to ensure to keep a prudent monetary stance in a way that will strengthen the anchorage
of medium- and long-term inflation expectations and to achieve this convergence” to a CPI inflation goal of 3% by the end of 2018. They are confident this will happen but determined to act if developments unfold in a way that suggest the goal is not getting met.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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