Mexico Monetary Policy December 2015

Mexico

Mexico: Despite low inflation Banxico raises rates following the Fed's move

December 17, 2015

At its last monetary policy meeting of 2015, scheduled for 17 December, Mexico’s Central Bank (Banxico) raised the target of the overnight interest rate by 25 basis points to 3.25%, which was a decision widely expected by the markets. Banxico’s increase was the first since 2008 and came a day after the U.S. Federal Reserve decided to hike interest rates for the first time in seven years.

Banxico’s Board’s decision was unanimous and, even as declining inflation had called for maintaining the interest rate at a record low in December, monetary authorities went on to hike interest rates. Banxico stressed the importance of maintaining the alignment with respect to the U.S. in a context of strong volatility in financial markets and other major central banks’ more accommodative monetary policy positions. Mexico’s Central Bank made clear its intentions to follow the Fed’s moves, aligning its monetary policy meeting calendar with that of the Fed as well as placing the Fed’s decisions at the forefront of variables to watch when taking decisions regarding interest rates.

In its statement, Banxico signaled that the economy had expanded faster than expected, supported mainly by private consumption and investment. Regarding the evolution of inflation, the Central Bank went on to recognize that inflation had fallen more than expected in 2015 and stated that it expects inflation to increase gradually towards its inflation target of 3.0% at the end of 2016 and to stabilize around the target in 2017. Banxico said that while domestic conditions would seem to suggest that it would be convenient to leave the interest rate unchanged and not adjust it in the wake of the Fed’s move, not adjusting the overnight interest rate could further weaken the Mexican peso and fuel inflation.

Although the minutes of the 17 December meeting provided little explicit information regarding guidance about the future path of the interest rate, the general view among analysts is that Banxico will closely follow the Fed in the near term. Banxico stated that it would remain wary about the short-term rate differential between Mexico and the U.S. while the Bank simultaneously appears to be more confident on the country’s economic growth. Banxico mentioned that economic and labor market slack are diminishing, although not to the extent as to generate demand side inflation pressures in the months to come. On balance, the Bank sees that risks to the outlook remain unchanged over the previous meeting’s assessment, although the Bank underlined that further exchange rate weakness is likely to require monetary authorities’ attention.

Following the rate increase in December 2015, analysts surveyed by Met the why particular believe that Mexico’s Central Bank will continue increasing interest rates on the heels of the U.S. Federal Reserve’s hikes. On average, the panel considers that the target of the overnight interest rate will end 2016 at 3.33%. For 2017, forecasters see the target of the overnight interest rate ending the year at 4.18%.


Author:, Senior Economist

Sample Report

Looking for forecasts related to Monetary Policy in Mexico? Download a sample report now.

Download

Mexico Monetary Policy Chart


Mexico Monetary Policy January 2016

Note: Banxico target rate (Tasa objetivo de fondeo bancario) in %.
Source: Mexico Central Bank (Banxico).


Mexico Economic News

  • Mexico: Consumer confidence hits decade-high following AMLO’s win

    August 3, 2018

    Consumer sentiment jumped in July on the heels of the 1 July general election, with the seasonally-adjusted consumer confidence index published by INEGI hitting a decade-high 111.7 points, up from a revised 88.6 points in June (previously reported: 88.0 points).

    Read more

  • Mexico: Banxico holds rates in August

    August 2, 2018

    At its 2 August monetary policy meeting, Banxico’s five-member board voted unanimously to hold the target rate at 7.75% after previously hiking rates ahead of the 1 July general election, a move broadly in line with market expectations.

    Read more

  • Mexico: Remittance inflows accelerate in June

    August 1, 2018

    Remittances totaled USD 3.1 billion in June (May: USD 3.2 billion), a robust 23.1% increase from the same month last year, accelerating from the revised 17.1% rise registered in May (previously reported: +19.8% year-on-year).

    Read more

  • Mexico: Growth disappoints in Q2 amid election-year challenges

    July 31, 2018

    A preliminary estimate for economic activity in the second quarter confirmed the challenges facing the economy in the run-up to the 1 July general election, with growth in the quarter coming up short against market expectations.

    Read more

  • Mexico: Trade deficit widens in June

    July 27, 2018

    Merchandise trade recorded a USD 0.9 billion deficit in June (May: USD 1.6 billion deficit), widening markedly from the USD 0.0 billion trade balance registered in June 2017.

    Read more

More news

Search form