The Bank of Mexico (Banxico) published this Thursday the September monetary policy meeting minuteswhen it decided to cut interest rates by 25 basis points to the current 10.5%.
The Minutes highlight that all members of the Board agreed that national productive activity is going through a period of weakness. The majority indicated that they have registered a visible loss of dynamism since the last quarter of 2023. The majority added that the information available for the beginning of the third quarter shows some rebound.
Regarding domestic demand, the majority indicated that consumption slowed down. Some considered that it has even stagnated. The majority highlighted that this component showed a contraction in the second quarter.
They all indicated that the labor market remains strong. The majority highlighted that the unemployment rate remains close to its historical lows. However, everyone acknowledged that job creation has slowed.
The majority agreed that the The inflationary outlook in Mexico has been improving, after the deep global shocks of previous years. However, he warned that he still faces challenges. Everyone believed that service inflation continues to exhibit persistence. Most mentioned that forecasts for headline and core inflation were adjusted slightly downward for some quarters in the near term. The majority believed that general inflation is expected to resume its downward trend and that underlying inflation will continue on its path.
decreasing. The majority considered that the balance of risks regarding the expected trajectory of inflation in the forecast horizon remains biased upwards.
The majority commented that since the last decision the financial markets in Mexico continued to show volatility. The majority highlighted that the Mexican peso operated in a wide range. It indicated that it recorded episodes of depreciation, and that said depreciation was partially reversed.
The Banxico Committee assessed that, although the inflation outlook still warrants a restrictive stance, the evolution it has presented implies that it is appropriate to reduce the degree of monetary tightening. Thus, with the presence of all its members, it decided by majority to reduce the target for the overnight Interbank Interest Rate by 25 basis points to a level of 10.50%.
Going forward, it is expected that the inflationary environment will allow additional adjustments to the reference rate. It will take into account the prospect that global shocks will continue to fade and the effects of weak economic activity. The Central Bank reaffirms its commitment to its priority mandate and the need to persevere in its efforts to consolidate an environment of low and stable inflation.
Mexican Peso Reaction
The Mexican peso has reacted upwards after the publication, recovering the losses suffered against the US dollar. At the time of writing, USD/MXN is trading around 19.48, virtually flat on the day.
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican peso (MXN), and set monetary policy. To do this, its main objective is to maintain low and stable inflation within target levels (at or near its 3% target, the midpoint of a tolerance band between 2% and 4%).
Banxico’s main tool to guide monetary policy is the setting of interest rates. When inflation is above the target, the bank will try to control it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN), as they generate higher returns, making 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 how 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 greatly influenced by the decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee typically meets a week after the Federal Reserve. By doing so, 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 rates, Banxico did so first in an attempt to decrease the chances of a substantial depreciation of the Mexican Peso (MXN) and avoid capital outflows that could destabilize to 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.
