Bank of Mexico maintains interest rate despite regional rate cuts.

Bank of Mexico maintains interest rate despite regional rate cuts.

Bank of Mexico Maintains Interest Rate Amid Complex Inflation Outlook


The Bank of Mexico, commonly known as Banxico, has chosen to hold its benchmark interest rate steady at 11.25% in its most recent decision, aligning with analysts’ expectations. This decision reflects the complex nature of the inflationary outlook, and hints at the possibility of rates remaining unchanged for a considerable period of time.

Banxico’s five-member board unanimously agreed on this decision, marking the third consecutive rate hold since May, when the bank paused a two-year cycle of hiking rates due to easing inflation. While other Latin American countries have responded to falling inflation with rate cuts, Banxico has taken a more cautious approach, as inflation in Mexico – the region’s second largest economy – still remains above the bank’s official target range of 3% (plus or minus one percentage point).

In a statement, the bank highlighted that “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.”

Market analysts do not anticipate rate cuts in Mexico until late 2023, even as other central banks around the world begin to ease their monetary policies. Furthermore, the eventual rate cuts in Mexico are expected to be more gradual than currently anticipated. Jason Tuvey, Deputy Chief Emerging Markets Economist at Capital Economics, noted that the timing and pace of rate cuts in Mexico will likely be slower than expected.

Official data released on Wednesday revealed that annual inflation in Mexico has slowed for the sixth consecutive month, standing at 4.79% in July. Although the inflation rate has decreased, it still exceeds Banxico’s target range. The central bank expects inflation to converge to the 3% target by the end of next year. However, it also acknowledged that the inflationary outlook will remain complicated and uncertain throughout the entire forecast horizon, with upward risks.

While Mexico is maintaining its interest rates, several other countries in the region, including Brazil, Chile, Costa Rica, and Uruguay, have already embarked on interest rate cuts after experiencing aggressive monetary tightening cycles.

Overall, Banxico’s decision to keep interest rates unchanged reflects the cautious approach taken towards managing inflation in Mexico. With an intention to achieve a gradual convergence towards its target, the bank is preparing for a complex and uncertain road ahead. As economists continue to monitor the inflationary trends and the global economic landscape, it remains to be seen how and when Mexico will join the trend of easing monetary policies adopted by other central banks worldwide.