Bank of Mexico

May 17, 2018

The Governing Board of the Bank of Mexico agreed unanimously not to raise the 7.5% overnight interbank rate further at this time. Higher inflation driven by peso depreciation driven by hostile U.S. policies toward Mexico has compelled the central bank authorities to adopt a prudent monetary policy. Starting with a 25-basis point rate hike in December 2015, officials went on to raise the rate by 250 basis points in 2016 and 150 bps in 2017, and they topped that off with a 25-basis point hike in February of this year.

A released statement identifies continuing potential risks to inflation, observing that “the peso exchange rate continues to be under pressure due to an environment of higher external interest rates and U.S. dollar strength, and uncertainty associated with both the NAFTA renegotiation and Mexico‚Äôs elections.” However, both total inflation of 4.55% and core CPI of 5.71% in April were lower than in March, and officials believe that a desired convergence on the 3% medium-term and longer-term target is achievable. They are carefully watching actual inflation as well as measures of expected inflation. Meanwhile, positive economic growth appears to have continued last quarter. For now, it was felt that the 7.5% interest rate level doesn’t need to be lifted higher at this time.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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