Mexico’s central bank hasn’t yet reached the point to start discussing a reduction in its key interest rate, Governor Victoria Rodriguez said Wednesday, signaling record-high borrowing costs will stay on for the foreseeable future.
(Bloomberg) — Mexico’s central bank hasn’t yet reached the point to start discussing a reduction in its key interest rate, Governor Victoria Rodriguez said Wednesday, signaling record-high borrowing costs will stay on for the foreseeable future.
“The discussion on whether we will reduce the interest rate is not on the table yet, it’s not a topic we’ve touched in our meetings,” Rodriguez said during the presentation of the bank’s quarterly inflation report. “The outlook ahead continues to be complex and uncertain. It’s important to remember that disinflation periods are not linear.”
Banxico, as the central bank is known, in March lifted the benchmark rate to 11.25%, ending a rate-tightening cycle initiated in mid-2021. Since then, inflation expectations have been trending down, with the headline annual CPI reading slowing for six consecutive months to 4.79% in July, yet the pace of economic activity accelerated.
Rodriguez’s remarks appears to tame expectations that the famously hawkish central bank will start easing its monetary policy in the last part of the year as some economists have been forecasting. The central bank’s five-member board has been unified about the need to remain vigilant on prices and had been saying since its May meeting that it would keep the key rate unchanged for a “prolonged period.”
A faster-than-expected growth could also make the disinflation process take longer.
“With today’s data, the monetary policy outlook is definitely more hawkish,” Felipe Hernandez, who covers Mexico for Bloomberg Economics, said. “It completely shuts the possibility of a rate cut in 2023 and reduces the space to do it in 2024.”
Earlier on Wednesday, Banxico raised its growth projection for Mexico for this year and next, signaling that activity is surpassing policymakers’ expectations in large part due to strong trade with the US. Latin America’s second-largest economy will expand 3% in 2023, above a previous estimate of 2.3%, and 2.1% next year, also above the previous 1.6% estimate.
Read More: Banxico Lifts Economic Growth Estimates Amid Strong Trade
–With assistance from Carolina Gonzalez.
(Adds context from third paragraph, analyst comment in sixth paragraph.)
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