Banco de Mexico board increases overnight interest rate 25 bps to 6˝%

By Caroline Salls

Pittsburgh, March 30 – The board of governors of Banco de Mexico decided to increase the bank’s overnight interbank interest rate by 25 basis points to 6˝%, according to a Thursday news release.

The board said global economic activity continued to present a recovery at the beginning of 2017. In particular, the bank said the U.S. economy has expanded moderately so far in the first quarter of this year, while the labor market conditions continued to be strengthened.

For its part, inflation as measured with a consumption deflator has continued to grow, gradually converging toward the goal of the Federal Reserve. In this context, the board said the target range for federal funds was increased by 25 bps, and withdrawal of the monetary stimulus will continue at a gradual pace.

In the euro area, the United Kingdom and Japan, the bank said there has been a greater dynamism of economic activity and a moderate rebound in inflation, which could lead to less accommodating monetary policies.

The board said forward-looking indicators point to better performance in the emerging markets, especially in their industrial sectors. In particular, the Chinese economy showed a slightly higher growth than expected, which could contribute to a more rapid recovery of that group, according to the release.

Overall economic activity is expected to continue to be strengthened for the rest of 2017 and 2018, in part reflecting the expectation of a mixture of fiscal, financial and deregulation by the new U.S. administration, although this scenario is uncertain.

Since the last monetary policy decision, the board said the conditions in the domestic financial markets improved significantly, and the value of the national currency appreciated significantly.

Although short-term interest rates rose in line with the more restrictive monetary policy stance adopted by the Bank of Mexico, the board said the longer-term rates decreased.

According to the release, the Mexican economy continued to expand at the beginning of 2017. In particular, external demand increased its contribution to growth, while private consumption remained a positive path, albeit with signs of a slowdown.

However, the bank said weak investment performance persisted.

General inflation continued to increase, hitting 5.29% in the first half of March, as a result of the increases of the underlying inflation.

The board said non-core inflation remains at very high levels, reaching 8.24% in the first two weeks of March, mainly reflecting the effect of the increases in energy prices in early 2017.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.