MexECON Blog

Central Bank Holds Rates at 4.00 Percent

Policymakers at Banco de México today held their benchmark interest unchanged at 4.00%, after cutting the rate from 4.50% in March.  In their statement, the policymakers noted that weaker economic activity abroad had already impacted the Mexican economy, with exports and some aspects of domestic demand decelerating.  In the policymakers' view, risks to economic growth and inflation remained weighted to the downside.  They noted that Mexican inflation has recently accelerated, but they expected it to resume falling toward their goal of 3.0%.

Comment:  In March, Banco de México cut interest rates for the first time since 2009, in large part to discourage the recent high inflows of capital from abroad.  Those inflows have driven up the value of the peso.  In addition, they present the risk that they could destabilize the economy if they suddenly reverse.  Unfortunately, capital inflows continued to rise rapidly after the rate cut, at least until recently.  The policymakers are now likely to maintain rates at their current level for a while to gauge whether they will eventually reduce the flows into Mexico.  Rates are likely on hold for the time being.

Patrick Fearon, CFA
Vice President, Fund Management

Benchmark Rate 1304

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