Puerto Vallarta, Mexico — The governing board of the Bank of Mexico (Banxico) decided on Thursday to keep the interbank funding rate unchanged at 11.0 percent for the second consecutive time. This decision comes amid ongoing inflation concerns and economic uncertainties.
In a meeting characterized by a notable split decision, four members of the governing board voted to maintain the current rate, while Deputy Governor Omar Mejía favored a 25 basis points reduction. The board’s decision followed a thorough evaluation of inflationary trends, concluding that “the challenges and risks on both sides of the balance sheet merit continuing with a prudent management of monetary policy.”
Looking ahead, Banxico’s governing board anticipates that “the inflationary environment will allow for discussion of adjustments to the reference rate.” They reiterated their commitment to achieving a 3% inflation target by the end of 2025, emphasizing that upcoming monetary actions will be aimed at converging general inflation towards this goal.
“The disinflationary process is expected to continue. Although the depreciation of the national currency has an upward influence on the inflation forecast, its effects are partly offset by those corresponding to the greater weakness of economic activity,” the board stated in an official announcement.
This decision follows a period of accelerated inflation in Mexico over the last three months (March to May), with inflation picking up again in early June, surpassing analyst expectations. In response, the board has slightly adjusted its inflation expectations for the second and third quarters of this year. However, it has maintained its end-of-2024 forecast at 4.0 percent.
Gabriela Siller, Director of Analysis at Banco Base, noted that the primary surprise in Banxico’s announcement was the lack of unanimity. “The expectation was for a unanimous decision, but the split vote indicates varying perspectives on the appropriate course of action given the current economic conditions,” Siller commented.
Mexican Peso’s Response to Banxico’s Announcement
The Mexican peso experienced initial losses earlier in the session but stabilized following Banxico’s announcement. Trading at around 18.40 per dollar prior to the decision, the peso depreciated to 18.46 moments before the announcement. Post-announcement, the peso’s value remained relatively unchanged compared to the previous day’s close.
Banxico’s decision to maintain the interest rate reflects a cautious approach amid inflationary pressures and currency depreciation concerns. The board’s future actions will likely continue to balance the need for economic stability with efforts to guide inflation towards the targeted rate.
Puerto Vallarta, Mexico — The governing board of the Bank of Mexico (Banxico) decided on Thursday to keep the interbank funding rate unchanged at 11.0 percent for the second consecutive time. This decision comes amid ongoing inflation concerns and economic uncertainties.
