Economic news

Bank of Mexico again holds interest rate firm, even as region begins cuts

2023.08.10 21:56


© Reuters. FILE PHOTO: The logo of Mexico’s Central Bank (Banco de Mexico) is seen at its building in downtown Mexico City, Mexico February 28, 2019. Picture taken February 28, 2019. REUTERS/Daniel Becerril/File Photo

By Brendan O’Boyle

MEXICO CITY (Reuters) – The Bank of Mexico maintained its benchmark interest rate at 11.25% on Thursday, in line with analysts’ forecasts, underscoring that the inflationary outlook remains “very complex” and suggesting the rate could hold steady for a while.

The unanimous decision by the central bank’s five-member board is the third consecutive rate hold since Banxico, as the Bank of Mexico is known, halted a two-year hiking cycle in May amid easing inflation.

While falling inflation has elicited rate cuts elsewhere in Latin America, Banxico has taken a more cautious approach as inflation in Latin America’s second largest economy remains above the bank’s official target of 3%, plus or minus a percentage point.

“In order to achieve an orderly and sustained convergence of headline inflation to the 3% target, (the board) considers that it will be necessary to maintain the reference rate at its current level for an extended period,” the bank said in a statement.

Rate cuts in Mexico are unlikely until late 2023, analysts say, even as central banks begin easing their monetary policy.

“When they do arrive, they will be more gradual than most currently anticipate,” said Jason Tuvey, deputy chief emerging markets economist at Capital Economics.

Annual inflation in Mexico slowed for the sixth consecutive month in July, official data showed on Wednesday, landing at 4.79%, but still above the central bank’s target.

While Banxico expects inflation to converge to its 3% target late next year, it said the inflationary outlook will be complicated and uncertain throughout the entire forecast horizon, with upward risks.

In recent weeks, central banks in Brazil, Chile, Costa Rica, and Uruguay have cut their interest rates after aggressive monetary tightening cycles.

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