Mexico’s central bank board members are weighing their path forward as dissipating price pressures allow them to consider the end of a record tightening cycle.
(Bloomberg) — Mexico’s central bank board members are weighing their path forward as dissipating price pressures allow them to consider the end of a record tightening cycle.
Banxico, as the central bank is known, slowed the pace of interest rate increases last month as inflation cooled, but minutes of its March meeting that were published Thursday showed that monetary easing may not be imminent.
Central bank members voted unanimously to raise borrowing costs by a quarter of a percentage point in the last meeting, pushing the key rate to 11.25%. In their post-decision statement, policymakers led by Governor Victoria Rodriguez Ceja said the board would “thoroughly monitor inflationary pressures” and other factors that have caused it to raise the rate to its highest level since the bank adopted inflation targeting in 2008.
Read More: Banxico Raises Rate to 11.25% as End of Hiking Cycle Nears
At least one member anticipates that the bank’s target level of 3%, plus or minus one percentage point, will prove elusive unless monetary policy remains restrictive.
The forward guidance “proposed in this policy statement is limited only to the upcoming decision and omits communicating that we anticipate that the monetary policy stance must remain restrictive for two years in order to achieve convergence to the 3% exact target,” board member Irene Espinosa said in a dissenting opinion in the minutes.
Another member said slowing the pace of interest rate increases in the last decision was justified, although core inflation had shown “greater persistence” in part because the ex-ante real interest rate, which adjusts the current rate for future inflation expectations, is “foreseen to increase.”
That member said that the bank’s monetary policy should be expected to begin showing its effects “more clearly” in the second half of this year and into 2024, when it should fully reach its goals, according to the minutes.
The board said it would continue to consider the inflation outlook when deciding whether to extend a hiking campaign that has seen it raise rates by a record 725 basis points since June 2021. The March decision to downshift to a quarter-point increase followed a similar move by the US Federal Reserve. Banxico often tries to maintain a rate differential to prevent capital outflows.
Both banks are likely to extend their run of interest rate increases next month, although slowing inflation in the neighboring economies and the recent liquidity crunch roiling US banks and markets have stoked speculation that each is nearing the end of its tightening cycle.
Read More: Mexico Inflation Eases Past Forecast as Rate Hikes Near End
Mexico’s annual inflation decelerated to 6.85% in March, from 7.62% the month before, as it continued to decline from its 8.7% peak last year. The core reading, which excludes volatile items like fuel, eased more slowly and remains a focus of policymakers’ concern. It cooled to 8.09% last month from 8.29% in February, after peaking in November at 8.51%.
Economists expect inflation to reach 5.26% at the end of 2023, with the core forecast at 5.52%, according to the most recent Banxico monthly survey published last week.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.