Mexico: Banxico to keep rate at 7% for a long time - BBVA

According to the Research Department at BBVA, the central bank of Mexico (Banxico) won’t rise rates at the next meeting. They see the central bank keeping the funding rate at 7% over a long period of time. 

Key Quotes: 

“More accommodative monetary policies going forward in South America and the end of tightening in Mexico In line with the downward trend in inflation, the central banks of Brazil, Chile, Colombia and Peru have announced cuts in their reference interest rates in recent months. In Argentina and Paraguay interest rates remained unchanged at the last monetary policy meetings, although for different reasons: in the first case rates remained at relatively high levels (26.25%) due to the concern with a somewhat slower disinflation process than was initially expected, while in the second case, the monetary policy rate remained at 5.5%, at which level it has been since last year, due to the fact that inflation remains well anchored within the target range and the economy continues to grow at around its potential rate.”

“In Mexico, Banxico announced adjustments of 25 basis points at its meetings in May and June, bringing the funding rate to 7.0%, due to concerns about higher inflationary pressures.”

“With regard to monetary policy in Mexico, Banxico has recently suggested that the cycle of monetary tightening has come to an end, supporting our view that the funding rate will be at 7.0% over a long period of time from now onwards.”

“Only in the third quarter of 2018, when inflation must once again be within the target range, should there be room for cuts in the funding rate. So, we see as more likely that, after two cuts of 50pb, the official rates reach 6.0% at the end of 2018.”