Background on Banco de México and Its Role
Banco de México, the central bank of Mexico, is responsible for implementing monetary policy to maintain price stability. It aims to keep inflation within a target range of 3% plus or minus one percentage point. The bank adjusts the benchmark interest rate, known as the Target Rate for Overnight Transactions (T/OTA), to influence overall economic activity and control inflation.
Market Expectations for the Upcoming Meeting
According to a survey conducted by Citi, involving 37 participants, the market widely anticipates another 25-basis-point cut in the T/OTA during Banco de México’s upcoming meeting on Thursday. This would be the third consecutive quarter-point reduction, bringing the rate down to 7.25% if implemented.
Barclays’ Unique Perspective
Among the 37 participants in Citi’s survey, only Barclays considers the possibility that Banco de México’s governing board might pause the rate-cutting cycle. However, Barclays projects that the bank will resume the cycle in its final announcement of the year, scheduled for December 18.
Impact on Mexico’s Economy
Banco de México’s interest rate decisions have significant implications for Mexico’s economy. Lowering the T/OTA reduces borrowing costs, encouraging businesses and consumers to take loans for investments and consumption. This increased spending can stimulate economic growth, but it may also lead to higher inflation if demand outpaces supply.
In recent years, Mexico has faced challenges such as slowing economic growth and elevated inflation. Banco de México has responded by cutting the T/OTA from its peak of 11.25% to the current level of 7.25%. These rate cuts aim to bolster Mexico’s economy by promoting investment and consumption.
Key Questions and Answers
- What is the current T/OTA? The Target Rate for Overnight Transactions (T/OTA) is currently at 7.25%.
- How many times has Banco de México cut the T/OTA this year? Banco de México has reduced the T/OTA three times so far in 2021, each by a quarter of a percentage point.
- What is the expected outcome of the upcoming meeting? Market participants widely anticipate another 25-basis-point cut in the T/OTA during the upcoming meeting.
- What is Barclays’ view on the rate-cutting cycle? Barclays considers the possibility that Banco de México might pause its rate-cutting cycle but expects it to resume before the year’s end.
