Banxico minutes reveal moderate easing bias amid inflation uptick
Banco de Mexico (Banxico) revealed its last meeting minutes on Thursday, in which the Mexican central bank cut rates by 50 basis points (bps) in a split vote of 4 to 1, with Deputy Governor Jonathan Heath wanting to keep rates unchanged as inflation edged up.
From a general standpoint, Banxico's board revealed that all members noted an increase in inflation since the previous monetary policy decision. Most board members added that the current inflationary pressures would not be long-lasting, while one board member argued that this would be the final 50-bps adjustment.
Key quotes
ALL BOARD MEMBERS NOTED THAT CORE INFLATION INCREASED SINCE PREVIOUS MONETARY POLICY DECISION
MOST BOARD MEMBERS HIGHLIGHTED THAT INTERNATIONAL FINANCIAL MARKETS CONTINUED EXHIBITING VOLATILITY IN LIGHT OF THE PREVAILING TRADE UNCERTAINTY
MOST BOARD MEMBERS COMMENTED ON THE FAVORABLE BEHAVIOR OF MEDIUM-TERM INFLATION DETERMINANTS, WHICH SUGGESTS THAT THE PRESSURES CURRENTLY FACED WILL NOT BE LONG LASTING
MOST BOARD MEMBERS MENTIONED THE POSSIBILITY OF SUPPLY SHOCKS EXERTING ADDITIONAL PRESSURES ON PRICES
ONE BOARD MEMBER ONE MEMBER ARGUED THAT THIS WOULD BE THE FINAL 50-BASIS-POINT ADJUSTMENT
ONE BOARD MEMBERSAID THE LEVEL OF MONETARY RESTRICTION HAS BEEN REDUCED, CONSIDERING THAT A GREATER AMOUNT OF SLACK WILL CONTRIBUTE TO EASE INFLATIONARY PRESSURES
SOME BOARD MEMBERS HIGHLIGHTED THAT MEDIUM- AND LONGTERM INFLATION EXPECTATIONS REMAINED STABLE
ONE BOARD MEMBER SAID THERE TOLERANCE OR INDIFFERENCE REGARDING THE CURRENT LEVELS OR THE RECENT INCREASE IN INFLATION
BOARD MEMBER WHO VOTED TO HOLD RATE SAID JUNE DECISION JEOPARDIZES MAINTAINING A SUFFICIENTLY RESTRICTIVE POLICY STANCE BECAUSE IT BRINGS IT NEAR THE UPPER RANGE OF THE NEUTRAL RATE
Banxico FAQs
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%.
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.
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.
