Mexico City. The governing board of the Bank of Mexico (BdeM) decided on Thursday to reduce its reference interest rate by a quarter of a percentage point to 10.75 percent. The decision was divided, as two members voted to keep it unchanged.
The rate that determines the cost at which businesses and families in Mexico finance themselves is being lowered despite the central bank saying that inflation has increased and the peso has depreciated due to the episode of volatility at the beginning of this week.
“Financial markets in Mexico suffered from the volatility of international markets. The Mexican peso depreciated… Annual general inflation increased and stood at 5.57 percent in July due to the notable increase in the non-core component, which is more volatile,” says the monetary policy announcement statement.
As a result, overall inflation expectations for the end of 2024 increased. In contrast, those for the underlying component decreased. Longer-term inflation expectations remained relatively stable at levels above the target.
The governing board said it assessed the behavior of inflation and its determinants, as well as inflation expectations. In this regard, it said in the statement that it considered the nature of the shocks that have affected the non-core component and the expectation that their effects on general inflation will dissipate in the following quarters.
He stressed that he had taken into account the path followed by the underlying component and that it is expected to continue to decline, while assessing that, although the inflationary outlook still warrants a restrictive stance, the evolution it has shown implies that it is appropriate to reduce the degree of monetary tightening.
“With all its members present, it decided by majority to reduce the target for the Interbank Overnight Interest Rate by 25 percentage points to a level of 10.75 percent,” it said.
Looking ahead, he said he expects the inflationary environment to allow for discussion of adjustments to the reference rate. He also said he will take into account the prospect that global shocks will continue to fade and the effects of weak economic activity.
The bank also said it will consider the impact of the current and continuing restrictive monetary stance on inflation trends over the time horizon in which monetary policy operates.
“The actions implemented will be such that the reference rate is consistent, at all times, with the path required to promote the orderly and sustained convergence of general inflation to the 3 percent target within the expected time frame,” the BdeM noted.
Victoria Rodríguez Ceja, Galia Borja Gómez and Omar Mejía Castelazo voted in favor of the decision. Irene Espinosa Cantellano and Jonathan Heath voted in favor of maintaining the target for the Interbank Interest Rate at 11.00 percent.
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– 2024-08-16 10:17:02
