Background on Banco de México (Banxico)
Banco de México, commonly known as Banxico, is the central bank of Mexico. Established in 1925, it plays a crucial role in maintaining price stability and fostering the country’s financial system. Banxico implements monetary policy, manages foreign reserves, and supervises financial institutions.
Banxico’s Interest Rate Cut
On the day in question, Banxico announced a fourth consecutive 50 basis points (pb) reduction in the reference interest rate, bringing it down to 8%. This move aligns with market expectations and places the rate at its lowest level since 2022. Banxico indicated that it will continue to evaluate further rate cuts, taking into account their implications on inflation.
Inflation and Economic Indicators
The general price index for consumers slowed down in the first half of June, settling at 4.51% year-on-year. This represents a decrease from the 4.62% recorded in the latter part of May. Despite this slowdown, inflation remains above Banxico’s official target of 3% ±1 point.
In the United States, the Gross Domestic Product (GDP) growth for the first quarter was reported to be lower than initially estimated. Additionally, the number of individuals applying for state unemployment benefits was less than anticipated the previous week.
Mexican Peso’s Performance
The Mexican peso closed with gains for the fourth consecutive day, trading at 18.8623 per dollar. This represents a 6.21 centavo or 0.33% increase compared to the previous day’s rate of 18.9244 pesos per dollar, according to official Banxico data.
During the trading session, the dollar’s price fluctuated between a high of 18.9400 pesos and a low of 18.8471 pesos. Meanwhile, the Dollar Index (DXY) from the Intercontinental Exchange, which compares the US dollar to six reference currencies, decreased by 0.41% to 97.30 points.
Market Context
The Mexican peso has experienced four consecutive days of gains amidst a more optimistic market following the de-escalation of tensions between Israel and Iran. Over this period, the local currency has appreciated by 30.60 centavos or 1.60%, rising from 19.1683 pesos on Friday.
Key Questions and Answers
- What is Banco de México (Banxico)? Banxico is Mexico’s central bank, responsible for implementing monetary policy, managing foreign reserves, and supervising financial institutions.
- What was the recent interest rate cut by Banxico? Banxico reduced the reference interest rate by 50 basis points, bringing it down to 8%.
- How has inflation been performing in Mexico? Inflation slowed down to 4.51% year-on-year in the first half of June, remaining above Banxico’s 3% target.
- What were the recent US economic indicators? The GDP growth for Q1 was lower than initially estimated, and the number of individuals applying for state unemployment benefits was less than expected.
- How has the Mexican peso performed recently? The Mexican peso has gained for four consecutive days, appreciating by 1.60% since Friday.
