(Bloomberg) — Mexico’s central bank policymakers talked about the importance of holding the key interest rate unchanged for longer than previously foreseen, with one member suggesting there may be a need to maintain monetary policy at its current level well into 2024.
(Bloomberg) — Mexico’s central bank policymakers talked about the importance of holding the key interest rate unchanged for longer than previously foreseen, with one member suggesting there may be a need to maintain monetary policy at its current level well into 2024.
Banxico, as the central bank is known, has held borrowing costs at 11.25% since March and has reiterated the need to take a wait-and-see approach amid inflation’s gradual deceleration. Board member stressed the importance of maintaining the policy, with one saying the bank should do so “at least for the rest of the year,” according to minutes of the Sept. 28 policy decision released Thursday.
That anonymous member talked about the possibility of extending the rate-hold beyond the first quarter of 2024, if needed. Others struck a similarly cautious approach, saying easing should not be “premature or implemented faster than necessary,” and that guidance should “highlight that a restrictive stance will be maintained for a more extended period than previously foreseen.”
Elevated consumer price data in September had bolstered expectations that the bank would remain hawkish in the coming months, as annual inflation reached 4.45%, well above the target of 3%, plus or minus one percentage point. Members said in the minutes that risks were balanced to the upside, reiterating the possible effect of factors such as labor costs, economic resilience, and energy prices.
Read More: Mexico CPI Stagnates in Sign Banxico Could Stay Cautious
Members spent time talking about the persistence of rising services prices, a factor in the upward adjustment of the bank’s inflation forecasts. Services are counted as part of the core component, which has remained at levels above headline inflation in recent months. All members agreed that inflation is now projected to reach their target level in the second quarter of 2025.
In the statement accompanying the last decision, policymakers repeated that they would have to hold rates for an “extended period” to achieve the “orderly and sustained convergence of headline inflation” to the target. The rhetoric was in line with what they had published in earlier meetings in which they decided to hold the rate.
Latin America’s second-largest economy has grown more than expected this year, and election spending has also added to concern of inflation pressures, as President Andres Manuel Lopez Obrador prepares for the end of his term in 2024. The government plans to boost spending on infrastructure projects and the military according to the 2024 draft budget, contributing to the highest projected fiscal deficit in 36 years.
Economists in a Citi survey published last week predicted that the bank would begin to lower rates with a 25 basis-point cut in March.
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