Bank of Mexico Leaves Overnight Interbank Rate at 7.75%

October 4, 2018

Mexican CPI inflation of 4.9% as of August exceeded the 3% target and even the target range ceiling of 4%. Expected inflation is also running above the comfort zone in Mexico, but growth is only around 2%. The central bank interest rate was increased by 250 basis points during 2016, 150 basis points during 2017, and by 25 bps each this year in February and, most recently, on June 20th. The successful conclusion recently of U.S./Mexico/Canada trade talks favors less pressure on the peso in the future and hence less inflation, thus supporting the Bank of Mexico’s expectations that inflation will settled back eventually and gradually. That said, officials are not near to the point of starting to unwind the series of interest rate cuts. Today’s decision in fact drew a single dissenting vote that favored a 25 basis point rate hike. According to a released statement,

Given the Mexican economy’s recent developments, that the shocks that have affected inflation recently are of a transitory nature, and that the expected trend for core inflation remains downward, Banco de México’s Governing Board has voted by majority to maintain the target for the overnight interbank interest rate unchanged at 7.75%. One member voted for increasing the rate by 25 basis points. The Governing Board will monitor the potential pass-through of the shocks that have
affected non-core inflation as well as other factors that could affect the evolution of core inflation, which is particularly relevant in the present scenario, since this indicator is still above 3%. In this regard, the central bank will take the necessary actions, specifically, maintaining or possibly strengthening the current monetary policy stance so that headline inflation converges to Banco de México’s target within monetary policy’s period of influence.

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



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