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

By Caroline Salls

Pittsburgh, May 17 – 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 board said the global economy continued to expand in the first quarter, although it registered some moderation.

The bank said a reduction in the slack of advanced economies has begun to reflect a gradual increase in inflation and its expectations in several of them.

In the United States, the board said economic activity is expected to grow at a solid pace in the coming quarters, and the Federal Reserve reiterated its forecast of gradual increases toward the target range and stressed that inflation will be located around its symmetrical target of 2%.

Although the growth forecasts for the world economy for 2018 and 2019 have remained unchanged compared to those released earlier this year, the bank said there are several downside risks to global growth, particularly in the medium and long terms, among which there is an environment of greater volatility in international financial markets in the presence of higher than expected inflationary pressures, an escalation of protectionist measures or the materialization of some geopolitical events.

In this context, the board said most currencies of emerging economies registered a considerable depreciation and an increase in volatility.

In the case of Mexico, the bank said the weakening of the peso was also affected by factors of an internal nature, but interest rates showed increases, especially in the longer terms.

According to the release, activity in Mexico continued to recover in the first quarter, with a growth rate even higher than that observed in the previous quarter.

The board said the monetary policy stance adopted to keep medium-term and long-term inflation expectations anchored, together with compliance with fiscal targets and the resilience maintained by the financial system, have contributed to the Mexican economy being in a better position to face possible adverse scenarios.

Annual headline inflation continued to decline, the bank said, going to 4.55% in April from 5.04% in March, reflecting reductions in both core and non-core inflation.

In particular, core inflation declined to 3.71% from 4.02% in this period as a result of monetary policy actions and the fading of shocks that affected it last year. On the other hand, the board said non-core inflation decreased to 7.07% from 8.03%, largely as a result of reductions in the prices of fruits and vegetables and LP gas, which were partially offset by increases in gasoline prices.

The general inflation expectations for the closing of 2018 decreased to 3.98% from 4.09% from March to April, the release said, while the medium-term and long-term expectations remained around 3.5%.

© 2015 Prospect News.
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