MexECON Blog

Central Bank Holds Rates at 3.00 Percent

In a decision on Friday, policymakers at Banco de México held their benchmark interest rate unchanged at 3.00%, right where it has been since the last rate cut in June.  In their statement, the policymakers discussed the acceleration in Mexican economic growth during the second quarter, which they ascribed mostly to external demand.  Because of the improved growth, they noted that the slack in the economy was gradually dissipating.  The policymakers also maintained their view that consumer price inflation would fall back toward their goal of 3.0% by early 2015, but they admitted that some of the recent price pressures had not been anticipated, and that inflation risks had increased.  While leaving the benchmark rate unchanged, they vowed to keep a close eye on the amount of slack in the economy and the evolution of U.S. monetary policy going forward.

Comment:  With their discussion of reduced slack in the economy, increased inflation risks, and the need to consider U.S. monetary policy (which is likely to include higher interest rates within one year), the policymakers at Banco de México are signaling that their next policy move will more likely be a rate hike than a rate cut.  That seems to be consistent with expectations in the financial markets.  It also is what I would expect.  While the surprise rate cut in June probably is contributing modestly to Mexico's recent economic rebound, the ongoing re-acceleration in exports and a nascent rebound in the construction industry argue for a normalization of policy sometime in the coming quarters.

Patrick Fearon, CFA
Vice President, Fund Management

Benchmark Rate 1409

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