Mexico central bank keeps interest rates at record high

Banxico said it will keep the 11.25% rate at the least next two meetings.

Mexico's central bank will maintain a record-high interest rate for at least the next two years before beginning to consider easing, said bank Governor Victoria Rodrguez.

Banxico is known as the central bank and will exercise caution at upcoming meetings, as policymakers have no set timeline for easing policy from the current 11.25%, he said.

The central bank will take a longer time than we can have between two monetary policy decisions to thoroughly evaluate the inflationary outlook and balance of risks, she said, but added that a potential recession in the US will also play a role of when the central bank starts cutting rates.

The central bank ended its record monetary tightening cycle on May 18 after increasing its key rate 725 basis points over 15 straight hikes beginning in June 2021. Since the bank started aiming for inflation in 2008, interest rates have been at their highest level.

By the end of the year 2023, the central bank reduced its projections for consumer price increases to 4.7% from 4.9% in March.

The most recent inflation data demonstrated a bigger-than-expected deceleration in early May, with the annual pace slowing to 6%, down from a peak of 8.8% in August but still more than double the central bank's 3% target.

Other board members included Banxico Deputy Governor Irene Espinosa, who said the bank will keep its strict stance on rates.

Is there any room to see cuts in rates? In my opinion, this scenario is possible, but it is unlikely. We are facing very high levels of inflation, especially core inflation, and with a phenomenon of persistence, said Espinosa, who declined the possibility of the bank starting its easing cycle in September.

The central bank of Mexico has raised its economic growth forecast for Latin America's second-largest economy as exports and remittances grow at record levels.

Banxico, as the central bank is known, estimates that gross domestic product will expand 2.3% this year, according to the main scenario of its quarterly inflation report released Wednesday. In a previous report, it forecasted growth of 1.6% in the first quarter of this year.

For 2024, it increased its GDP growth forecast to 1.6% from 1.8%.

During the first quarter, Mexico experienced strong domestic demand and strong foreign demand, especially from the US. The economy is predicted to continue receiving robust remittance and record exports to the US before a slowdown in activity.

policymakers remained cautious and signaled that interest rates would need to be kept at a limited level for a prolonged period.

Economists in a Citibanamex survey published last week kept their 2023 growth forecast at 1.9%, up from 1% in early February. They also predicted that the central bank's key rate would end the year at its current level.

With assistance from Carolina Gonzalez, Carolina Gonzalez, Rafael Gayol, Dale Quinn, and Alex Vasquez.