On May 15, the Bank of Mexico is expected to also reduce 8.5%interest rates, according to a Reuters survey conducted on Monday, despite high levels of inflation near the upper limit of the Central Bank range.
Of 31 economists surveyed, 30 expect Banxico to carry out their third consecutive cut of 50 basic points. At the last monetary policy meeting, Banxico declared that it could consider additional significant adjustments in the rates in subsequent decisions if inflation allows.
The last inflation report of Mexico, published last week, revealed that prices increased 3.93% year -on -year in April.
Those responsible for Banxico policy seem concerned about economic growth, as evidenced in their recent media appearances. Private analysts said that the risks of another economic contraction remain.
For the June meeting, 19 of 21 analysts expect another rate cut at the June meeting. The survey revealed that the median of 23 forecasts expects the level of the key interest rate of Mexico to end at 7.75% by the end of the year.
BANXICO FAQS
The Bank of Mexico, also known as Banxico, is the central bank of the country. Its mission is to preserve the value of the Mexican currency, the Mexican weight (MXN), and set the monetary policy. For this, its main objective is to maintain low and stable inflation within the target levels – in or close to its 3%target, the midpoint of a tolerance band between 2%and 4%.
The main Banxico tool to guide monetary policy is the fixation of interest rates. When inflation is above the goal, the bank will try to control it by raising the rates, which makes the debt of homes and companies more expensive and, therefore, cools the economy. The highest interest rates are generally positive for Mexican weight (MXN), since they lead to higher yields, which makes the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken the MXN. The rate differential with the dollar, or the way in which Banxico is expected to set interest rates compared to the United States Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year and its monetary policy is very influenced by the decisions of the United States Federal Reserve (Fed). Therefore, the decision -making committee of the Central Bank usually meets a week after the Fed. In this way, Banxico reacts and sometimes anticipates the monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised the rates, Banxico first did it in an attempt to reduce the possibilities of a substantial depreciation of the Mexican weight (MXN) and avoid capital outputs that could destabilize the country.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
