A Reuters vote revealed that on March 27, Banco de Mexico (Banxico) is expected to reduce interest rates by 50 BPS in the middle of the development of the disinflation process and an ongoing financial slowdown.
Economists expect the rates to be as low as 8.25% in 2025
Of 25 economists, 23 expects the central bank to lower the loan costs by 50 bps from 9.50% to 9.00%. The other two economists estimate that the Mexican central bank will keep the rates unchanged.
This would be the second interest rate section of this size, after February meeting, where the Management Council approved to reduce the most important reference from 10.00% to 9.50% on a 4 to 1 voice split, with Deputy Generator Jonathan Heath Dissent as he voted to reduce the rates by 25 bps.
Although Banxico’s mandate is to control inflation, the recent economic slowdown caused the Mexican institution to facilitate policy as decision makers justified that when the economy is cooled, it does inflation.
Alongside this, Mexico’s economic dock is busy next week with the release of inflation in March in mid -month, retail sales and trading balance.
Banxico frequently asked questions
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 up monetary policy. To this end, its main target is to maintain low and stable inflation within target levels – at or close to its target of 3%, the center of a tolerance band of between 2%and 4%.
The most important tool in Banxico to guide monetary policy is about to set interest rates. When inflation is above the target, the bank will try to tame it by raising the rates, making it more expensive for households and businesses to borrow money and thus cool 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 speed difference with USD or how Banxico is expected to set the interest rate compared to the US Federal Reserve (Fed) is a key factor.
Banxico meets eight times a year and its monetary policy is greatly influenced by decisions made by the US Federal Reserve (Fed). Therefore, the Central Bank’s decision committee usually gathers a week after Fed. Thus, Banxico responds and sometimes expects monetary policy measures set by Federal Reserve. For example, after the Covid-19 pandemic, before the Fed Raised Rates, Banxico did not make it first in an attempt to reduce the chances of a significant depreciation of the Mexican Peso (MXN) and to prevent capital flow that could destabilize the country.