Bank of Mexico

March 26, 2015

Monetary easing in Mexico since 2009 has happened in two waves.  In each of the first seven months of that year, there was a rate cut, the total of which added up to 375 basis points, cutting the main interest rate to 4.5% from 8.25%.  The second wave of easing began with a 50-basis point reduction in March 2013.  Such was followed by declines of 25 basis points in both September and October of 2013 and a second 50-basis point reduction last June.  Although nine months have passed since that last reduction to 3.0%, a statement released after today’s policy meeting suggests that the second wave of easing may not be over.  Officials assert that downside risks to growth have deteriorated (Mexico is an oil exporter).  There’s slack in the labor market, and export growth is less dynamic than before.  Inflation recently dipped under the 3.0% target, and officials are confident that both headline and core inflation will converge on target but not overshoot such in 2016.  The reservation against easing is the peso’s vulnerability given uncertainties related to oil prices and Fed policy. 

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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