Banxico puts growth first as rates held

Banxico puts growth first as rates held

Mexico Economy & Policy

The bank pointed to slow global growth and a falling peso when it kept rates at 4% at its Friday meeting. Some analysts said there was a higher likelihood the bank’s next move would be to cut rates than to raise them, and that the statement showed growth was a central factor in Banxico’s monetary policy.

Slower than expected growth in emerging markets, especially Asia, the weak eurozone economies and downward revisions to growth forecasts in the US contributed to negative pressure on global GDP, the central bank said. The Mexican economy was also slowing, and inflation had started to fall since May.

“Overall, Banxico shows its continued concern with the outlook for growth,” said RBS analysts. They said Banxico would cut rates later in the second quarter if growth continues to disappoint.

Goldman Sachs analysts said Banxico’s forward-looking language was broadly neutral but the overall stance was more dovish. “The central bank is clearly more comfortable with the inflation outlook and more concerned with the significant loss of buoyancy of domestic demand. This implies that, although rate cuts are not currently in play, the central bank may consider monetary easing in the near future if the soft activity patch continues and the inflation dynamics remain favorable.”

Meanwhile, analysts at Barclays and Itaú said they expected Banxico to remain neutral for the rest of the year.

“In our view, in spite of the downside surprises in Mexico’s economy, the prospect of the withdrawal of monetary stimulus in the US and the already-low interest rate in Mexico will prevent the board from engaging in additional monetary easing,” said Itaú analysts. LF