Background on Banxico and Its Role
Banquiers de Mexico, or Banxico, is the central bank of Mexico responsible for managing monetary policy to maintain price stability and support economic growth. Its primary objective is to keep inflation within a target range of 3%.
Current Inflation Situation
As of late May, Mexico’s annual inflation rate stood at 4.4%. However, experts predict that the National Institute of Statistics and Geography (Inegi) will announce a rise to 4.6% by the end of the first half of June.
Since February, inflation has consistently increased, making it nearly impossible for the rate to stay within Banxico’s target range of 3% by the end of 2025.
Expected Monetary Policy Adjustment
Given the persistent inflation, Banxico is widely expected to lower its benchmark interest rate by another 50 basis points this Thursday. This decision is based on the gap between the inflation rate and the interest rate, rather than the inflation rate itself.
A Reuters survey suggests only a 20% chance that Banxico will deviate from expectations, either by reducing the interest rate by only 25 basis points or pausing its decision.
Economic Context and Banxico’s Focus
Although the Mexican law mandates Banxico to maintain price stability, it does not explicitly prioritize economic growth. Consequently, Banxico’s primary concern remains controlling inflation.
The current economic slowdown, indicated by the Indicador Global de la Actividad Económica (IGAE) for April, is not Banxico’s responsibility. Instead, the bank must address inflation concerns, which disproportionately affect lower-income groups.
Banxico’s communication and autonomy have been scrutinized, as the central bank seems more focused on avoiding an economic downturn rather than tackling inflation head-on.
Key Questions and Answers
- What is Banxico’s primary objective? Banxico aims to maintain price stability and support economic growth by keeping inflation within a target range of 3%.
- Why is inflation a significant concern? High inflation rates disproportionately affect lower-income groups, as it increases the cost of living and erodes purchasing power.
- What factors influence Banxico’s monetary policy decisions? Banxico considers the gap between inflation rates and interest rates, prioritizing price stability over economic growth.
- What is the current state of the Mexican economy? The economy is experiencing a noticeable slowdown, but this is not Banxico’s direct responsibility. The central bank must address inflation concerns.
