Banxico Minutes confirm 50 bps rate cut, cites high level of uncertainty, economic weakness

Christian Borjon Valencia FXStreet

On Thursday, the Banco de Mexico (Banxico) revealed its latest meeting minutes, in which the central bank decided to lower interest rates by 50 basis points to 8.50% at its May 15 meeting. The release of the minutes has had a minimal impact so far on the USD/MXN pair, which trades with a loss of 0.17% at 19.35, weighed by broad US Dollar weakness.

Key Quotes

All members agreed that the period between monetary policy decisions continued to be characterized by a high uncertainty generated by the various trade policy announcements worldwide.
Most members expressed that the changes in trade policy have brought along a high level of uncertainty to the global outlook.
All members expressed that gross fixed investment in Mexico intensified its downward trend.
Most members mentioned that Mexican economic activity is expected to continue showing weakness.
Most members indicated that the balance of risks for economic activity remains biased to the downside. All members highlighted the risks associated with a possible intensification of uncertainty regarding the US trade policy
Some members indicated that progress towards central banks’ inflation targets is expected to continue.
All members noted that the US Dollar depreciated across the board against other currencies.

Banxico FAQs

What is the Bank of Mexico?

The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.

How does the Bank of Mexico’s monetary policy influence the Mexican Peso?

The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.

How often does the Bank of Mexico meet during the year?

Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.

Author

Christian Borjon Valencia

FXStreet

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

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