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Clouds of uncertainty Mexico’s financial horizon – el FINANCIERO

Clouds of uncertainty Mexico's financial horizon - el FINANCIERO

  • Public security and the policies implemented by the United States are a source of concern for businesses.
  • The central bank warns the demarcation could elaborate; Occurs investment increase in the midst of weakening of demand and merchant tensions

Banco de Mexico (Banxico) Director of Economic Research Alejandrina Salcedo Cisneros said uncertainty has a widespread influence on the country’s companies, so the prospects point to a moderate expansion of regional economies.

Banxico’s economist added, “We had a slowdown that we had observed in several quarters, which this environment of uncertainty is now composed of.” She said this could be due to lower internal and external demand, given that manufacturing production was slowering in the United States (US).

Mexico’s central bank revealed an economic contraction of 0.6 % in the 4th quarter of 2024. Although the country is not in a recession, having a negative quarter could be a prelude to a deeper financial slowdown.

Business leaders interviewed by Banxico indicated that deterioration of public security and trade policies implemented by the United States is among the risks that could affect regional economies in the next year.

OB public investments in state and federal infrastructure may also be lower than expected.

She believed that in light of these challenges it is necessary to continue to strengthen domestic growth sources and generate favorable investment conditions, especially to continue to promote infrastructure construction.

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.

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