Mexico’s central bank trimmed its economic growth forecasts for this year and next, after raising borrowing costs more aggressively than expected in February.
(Bloomberg) — Mexico’s central bank trimmed its economic growth forecasts for this year and next, after raising borrowing costs more aggressively than expected in February.
Banxico, as the central bank is known, estimates that gross domestic product will expand 1.6% in 2023, according to the main scenario of its quarterly inflation report released Wednesday. That’s below the 1.8% seen in the previous report, which was published Nov. 30. For 2024, it forecasts growth of 1.8%, down from 2.1%.
Latin America’s second-largest economy slowed in the second half of last year as exports fell and local consumption weakened. While posting slightly better-than-expected fourth-quarter growth, most analysts are less upbeat about Mexico’s growth outlook than the central bank, especially with the key rate at a record 11% and more tightening expected.
The rate is currently the highest since Banxico started targeting inflation in 2008. Analysts in a Citibanamex survey published last week forecast a 1.1% rise in GDP this year and 2% in 2024. Governor Victoria Rodriguez said the bank would take into account the inflation panorama and monetary policy stance already achieved when deciding the current hiking cycle’s terminal rate.
“We’ve already accumulated a 700 basis-point increase, our rate is in restrictive territory, and as shown in the presentation, we’ll continue to watch what happens with inflation. We put emphasis on core inflation, as we’ve said, because we haven’t seen the decrease that had been anticipated,” she said during the quarterly report presentation.
The central bank also maintained its projection at 4.9% for the end of 2023, which had been updated in the bank’s Feb. 9 post-decision statement. Core inflation has been a particular concern for the five-member board, which singled it out in the minutes of its last decision as one of the factors that led it to vote unanimously for a 50 basis points hike.
After several months of slowing, annual inflation ticked up in December and January, before decelerating to 7.76% in early February. Core inflation, which excludes volatile prices such as fuel, slowed to 8.38%. The central bank targets an annual inflation rate of 3%, plus or minus one percentage point.85
The bank signaled in its previous statement that it may moderate the pace of rate of increases at its next decision in March. Governor Irene Espinosa said she disagreed with the decision to provide specific foreword guidance, reflecting her stance in the minutes of the Feb. 9 decision, though she voted along with the other members of the board for the hike.
“The decision to surprise was not easy, and it’s not something we want to repeat. For that reason, I think our prospective guide should be extremely cautious,” Espinosa said. “Surprising is not something that, as central bankers, we want to do.”
–With assistance from Rafael Gayol and Alex Vasquez.
(Update with comments from the Banxico board starting in fifth paragraph.)
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