Noteworthy
- Bank of Mexico Keeps Interest Rate Unchanged for Fifth Straight Time
- U.S Dollar Steady After Best Run in Six Weeks
The Bank of Mexico held its benchmark interest rate steady for a fifth consecutive time Thursday, while hinting it could be moving closer to eventual rate cuts as progress is made in lowering inflation.
The central bank’s five-member board of governors voted unanimously to keep the overnight interest-rate target at 11.25%, as expected.
It was the bank’s fifth straight meeting on hold since May. After the previous four meetings, the bank said it expected to keep the rate at its current level for an “extended period,” but on Thursday said it expects to hold the rate steady “for some time.”
“We would interpret this as slightly less hawkish than previous guidance,” said Jason Tuvey, deputy chief emerging markets economist at Capital Economics. “It looks like officials may be starting to contemplate the start of an easing cycle.”
The Bank of Mexico said the inflation outlook remains complicated, but that “progress on disinflation has been made.” It said risks to its inflation forecasts remain tilted to the upside.
Inflation reached a more than two-decade high of 8.7% in September of 2022, prompting the bank to raise the reference rate to its current record high. Inflation has eased for the past nine months, reaching 4.26% in October, with core inflation at 5.50%.
Following the statement, the Mexican peso weakened to around 17.84 against the U.S. dollar from 17.47 earlier in the session.
“It may be a change in wording, but I felt that the statement was less restrictive, and this was reflected in the exchange rate,” said Gabriela Siller, head of economic analysis at Banco Base.
A majority of banks polled this week by Citigroup unit Citibanamex expect the Bank of Mexico to begin cutting the rate in the first quarter of 2024, while a growing number have pushed their expectations for the start of an easing cycle to the second quarter.
“Economic activity remains robust, and while headline inflation continues to converge towards target, core inflation remains sticky,” analysts at Citi Research said in a note. With the economy growing steadily despite the historically restrictive monetary policy, the Bank of Mexico can afford to stay on hold for signs that core inflation is turning a corner, they added.
The Bank of Mexico lowered its inflation forecasts for the fourth quarter of this year and first quarter of 2024, but still expects inflation to take until the second quarter of 2025 to return to its 3% target. The bank’s core inflation forecasts were unchanged.
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