Central Bank of Mexico maintains interest rate before “disinflation” phase

The Central Bank of Mexico (Banxico) decided Thursday to maintain the key interest rate at 11.25% and end the upward cycle that began in June 2021, considering that the country has entered a phase of “disinflation”.

The five members of the Board of Governors unanimously decided not to move the Overnight Interbank Interest Rate target since, at that level, they argued, the trajectory required to achieve the convergence of inflation with its 3% target is maintained.

“The Board of Governors evaluated the magnitude and diversity of inflationary shocks and their determinants, as well as the evolution of medium- and long-term expectations and the price formation process,” Banxico explained in its monetary policy notice.

“It considered that a disinflationary phase has been entered since various pressures have been mitigated,” it added.

However, Banxico explained that the inflationary outlook will be “complicated and uncertain” towards the end of 2024, with upside risks such as pressures on energy or agricultural prices.

The institution estimates that local inflation will stand at 4.7% at the end of 2023 and 3.1% at the end of 2024.

Banxico highlighted that although general inflation remains high globally, several central banks have stopped increasing their rates, while global growth prospects for 2023 anticipate a deceleration.

With the decision announced Thursday, Banxico suspends the key interest rate hike cycle that began in June 2021 amid accelerating prices amid global risks associated with the new coronavirus pandemic, prolonged inflationary pressures, and tighter monetary and financial conditions.

The institution said that to achieve the orderly and sustained convergence of headline inflation to the 3% target, it will be necessary to maintain the reference rate at its current level for an extended period.

With information from Xinhua

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