August 08, 2024 at 08:04PM
The Mexico central bank lowered their benchmark interest rate to 10.75% from 11%.
The expectations were split between unchanged and a 25 basis point cut.
Banco de México’s Governing Board lowered the target for the overnight interbank interest rate by 25 basis points to 10.75%, effective August 9, 2024.
Economic activity remained heterogeneous across countries in Q2 2024.
The US economy grew faster than other advanced economies; headline and core inflation continued decreasing in most advanced economies.
Some central banks of advanced economies cut their reference rates; the Federal Reserve left its rate unchanged, and the Bank of Japan raised it.
Global financial markets experienced volatility due to the Bank of Japan’s rate hike and lesser dynamism in the US labor market.
Key global risks include geopolitical turmoil, prolonged inflationary pressures, financial market volatility, and challenges to financial stability.
Mexican financial markets were affected by international volatility; the Mexican peso depreciated, and the yield curve for government bonds decreased.
Mexico’s economic activity grew at a low rate in Q2 2024, continuing the weakness observed since the end of 2023.
Annual headline inflation rose to 5.57% in July due to a significant increase in the non-core component; core inflation, which better reflects the inflation trend, was 4.05%.
Expectations for headline inflation for the end of 2024 were revised upwards; expectations for core inflation decreased, remaining stable for longer terms above target.
Forecasts for headline inflation were revised upwards for the short term; core inflation anticipated to be 3.7% annualized in Q3 2024.
Headline inflation is expected to converge to the target in Q4 2025, subject to various risks.
The Governing Board considered the behavior of inflation and its determinants, projecting the dissipation of non-core component effects on headline inflation over the next quarters.
The Board decided by majority to lower the target interest rate, estimating that the outlook for inflation allows for reducing the level of monetary restriction.
Looking ahead, the Board foresees discussing reference rate adjustments based on global shocks, economic activity weakness, and the monetary policy stance.
The Board remains committed to achieving an orderly and sustained convergence of headline inflation to the 3% target.
Victoria Rodríguez, Galia Borja, and Omar Mejía voted in favor of lowering the rate; Irene Espinosa and Jonathan Heath voted to maintain the target at 11.00%.
This article was written by Greg Michalowski at www.forexlive.com.
