Banco de Mexico board votes to keep overnight interest rate at 7˝%

By Caroline Salls

Pittsburgh, April 12 – The board of governors of Banco de Mexico voted unanimously to keep the bank’s overnight interbank interest rate at 7˝%, according to a Thursday news release.

The bank said the global economy continued to expand in the fourth quarter of 2017, and a reduction in the slack of the advanced economies has begun to be reflected in a gradual increase in wages.

The board said a rebound in global demand, coupled with the rise in energy prices, has contributed to a gradual increase in inflation and its expectations in the main advanced economies, although these are still below the targets of their respective central banks.

In the United States, the bank said economic activity is expected to grow at a solid pace. In this environment, the Federal Reserve increased the target range for the Federal Funds rate by 25 basis points at its March meeting and indicated that the economic outlook has strengthened and that inflation is expected to increase this year and stabilize around its objective in the medium term.

The board said the growth forecasts for the world economy for 2018 and 2019 have been revised upward. However, there are several downside risks to global growth in the medium term, among which are: financial instability in the face of an inflationary surprise in the United States, as well as the adoption of protectionist measures in various regions or materialization of some geopolitical events.

In this environment, the bank said the price of the peso has presented an additional appreciation since the last monetary policy decision.

According to the release, available information suggests that in the first months of 2018 economic activity in Mexico continued to increase, driven especially by the services sector and some recovery of industrial activity.

In terms of domestic demand, the board said private consumption continued to expand, albeit at a slower pace, while toward the end of 2017 and the beginning of 2018 there was an increase in investment.

However, the bank said the Mexican economy faces considerable risk factors, so the risk balance for growth continues to be biased downward.

Monetary policy actions that have been implemented to keep anchored medium-term and long-term inflation expectations, coupled with the fulfillment of fiscal targets in 2017 and the commitment to do so in 2018, have contributed to the Mexican economy being in a better position to face possible adverse scenarios, the release said.

The board said annual headline inflation continued to decline, dropping to 5.04% in March from 5.55% in January, reflecting reductions in both core and non-core inflation. In particular, core inflation declined to 4.02% from 4.56% in this period, as a result of monetary policy actions and the collapse of the shocks that affected the previous year.

On the other hand, the governors said non-core inflation decreased to 8.03% from 8.44%, largely as a result of reductions in the prices of fruits and vegetables and liquid propane gas, which were partially offset by increases in the prices of gasoline and those of some livestock products.

The general inflation expectations for the closing of 2018 remained practically unchanged, the release said, while the medium-term and long-term expectations remained around 3˝%.

© 2015 Prospect News.
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