Background on Banco de México (Banxico)
Banco de México, commonly known as Banxico, is the central bank of Mexico. Established in 1925, its primary objectives are to maintain price stability and promote sustainable economic growth. Banxico sets the monetary policy, manages foreign reserves, and supervises financial institutions to ensure a stable financial system.
Recent Inflation Trends and Banxico’s Actions
In recent months, Mexico has experienced elevated inflation rates. Banxico aims to keep annual inflation at 3.0% ± 1 percentage point, as per its permanent target. To combat rising inflation, Banxico has implemented a series of interest rate cuts.
Previous Interest Rate Cuts
In the previous month, Banxico reduced its benchmark interest rate by half a percentage point. This marked the fourth consecutive cut of such magnitude, reflecting the bank’s commitment to addressing inflationary pressures.
However, the decision was not unanimous. Sub-governor Jonathan Heath voted against changing the rate, citing signs of inflationary desacceleration and slow economic growth.
July Inflation Forecasts
According to a Reuters survey, general inflation is projected to moderate in July. The median estimate from 13 participating analysts suggests an annual inflation rate of 3.53% for the National Consumer Price Index (INPC), which would be its lowest reading since December 2020 if confirmed.
Subjacent inflation, which excludes volatile items and is considered a better gauge of price trends, is expected to remain above Banxico’s target at 4.23%. This is slightly below June’s rate of 4.24%.
Preliminary July Data
For the month of July, consumer prices are forecasted to increase by 0.28%, while the subjacent index is expected to rise by 0.30%. These estimates will be officially released on Thursday, just before Banxico’s interest rate decision.
Market Expectations for Interest Rate Adjustments
Another Reuters survey from last week indicated that the market widely anticipates Banxico will reduce the cost of credit by only 25 basis points.
Key Questions and Answers
- What is the expected general inflation rate for July? The median estimate from 13 analysts is 3.53% for the annual inflation rate of the National Consumer Price Index (INPC).
- What is the projected subjacent inflation rate for July? Subjacent inflation is expected to be around 4.23%.
- What was the outcome of Banxico’s recent interest rate decision? Banxico reduced its benchmark interest rate by half a percentage point, marking the fourth consecutive cut of this magnitude.
- Was Banxico’s interest rate decision unanimous? No, the decision was not unanimous. Sub-governor Jonathan Heath voted against changing the rate.
- What are the expected monthly changes in consumer prices and subjacent index for July? Consumer prices are forecasted to increase by 0.28%, while the subjacent index is expected to rise by 0.30%.
- What is the market’s expectation for Banxico’s next interest rate adjustment? The market widely anticipates that Banxico will reduce the cost of credit by only 25 basis points.
