Who is Banco de México (Banxico)?
Banco de México, commonly known as Banxico, is the central bank of Mexico. Established in 1925, it is responsible for implementing monetary policy, managing foreign reserves, and overseeing the country’s payment system. Banxico plays a crucial role in maintaining price stability and ensuring the financial system’s efficiency.
Recent Monetary Policy Actions
In a series of five consecutive 50-basis-point (pb) reductions, Banxico lowered its key interest rate to 8.0% in the previous month. This action was part of a monetary easing cycle following an all-time high of 11.25% earlier in 2024.
Divided Decision
The recent decision, however, was not unanimous. Sub-governor Jonathan Heath voted against the rate cut, indicating a potential shift towards a more gradual approach in future policy decisions.
Inflation Outlook
According to a Reuters survey conducted on July 21, annual inflation is expected to have slowed down in the first half of July, although the underlying index remains under pressure. This suggests that Banxico might moderate the pace of its interest rate cuts.
- Annual Inflation: The median forecast of 11 analysts predicts an annual inflation rate of 3.64%, down from 4.13% in mid-June and within Banxico’s target range of 3.0%, +/- 1 percentage point.
- Underlying Inflation: Forecasts for underlying inflation, a better gauge of price trends as it excludes highly volatile items, show an acceleration to 4.30%, the highest since mid-2023.
Price and Underlying Index Forecasts
The survey predicts a 0.27% rise in consumer prices and a 0.20% increase in the underlying index over the past two weeks.
Official Data Release
The official data is expected to be published on Thursday.
Impact on Mexican Economy
Banxico’s monetary policy decisions significantly influence Mexico’s economy. Lower interest rates aim to stimulate borrowing, spending, and investment, thereby supporting economic growth. However, managing inflation is equally crucial to maintain price stability and public trust in the currency.
Key Questions and Answers
- What is Banxico’s target inflation range? The target range is 3.0%, +/- 1 percentage point.
- What is the current key interest rate? The key interest rate is 8.0%.
- What factors influence Banxico’s monetary policy decisions? Factors include managing inflation, supporting economic growth, and maintaining price stability.
- What is the significance of underlying inflation? Underlying inflation, excluding volatile items, provides a clearer picture of long-term price trends.
