Banxico maintains its interest rate at 11.25% for the fifth consecutive meeting, anticipating that it will remain that way for some time

• The Bank of Mexico leaves its interest rates unchanged at 11.25% at the November meeting.
• Mexican inflation moderated to 4.26% annually in October compared to the expected 4.28%.
• USD/MXN rises to one-week highs near 17.70 following Banxico’s announcement.

Banxico announced this Thursday that it maintains its interest rates unchanged at 11.25%, as the market anticipated. This is the fifth consecutive meeting in which the Bank of Mexico does not change its rates. The last 25 basis point rise to the current level took place in March.

Banxico statement

In the third quarter of 2023, the heterogeneity in economic activity between countries was accentuated. Headline inflation continued to decline in most economies, although it remains at high levels. The underlying component registered reductions, although more gradual than those of general inflation. Most central banks in major advanced economies left their reference rates unchanged. These are expected to remain at high levels for an extended period. Sovereign interest rates increased globally and the US dollar appreciated across the board, although these movements have recently reversed. Global risks include the prolongation of inflationary pressures, the worsening of geopolitical tensions, tighter financial conditions and, to a lesser extent, challenges to financial stability.

In Mexico, interest rates on government securities increased in all terms and the Mexican peso depreciated. However, in line with the behavior of international financial markets, these adjustments tended to be reversed. Economic activity maintained a robust growth path and the labor market continued to show strength.

Since the last monetary policy meeting, Annual headline and core inflation continued to decline. However, both remained high, standing at 4.26% and 5.50% in October., respectively. The non-core component remained at particularly low levels, standing at 0.56% that month. Inflation expectations for the end of 2023 remained unchanged
change in the case of general inflation, while those corresponding to core inflation decreased. The longer-term ones remained relatively stable at levels above the goal.

The mitigation of the shocks derived from the pandemic and the geopolitical conflict, together with the monetary policy stance, have contributed to the downward trajectory of inflation. Forecasts continue to predict that both general and core inflation will maintain this downward trajectory. Inflation is still expected to converge to the target in the second quarter of 2025. These forecasts are subject to risks. On the upside: i) persistence of core inflation at high levels; ii) exchange depreciation; iii) increased cost pressures; iv) that the economy shows greater resilience than expected; and v) pressures on energy or agricultural prices. On the downside: i) a greater-than-anticipated slowdown in the global economy; ii) a lower pass-through of some cost pressures; and iii) that the lower levels of the exchange rate compared to the beginning of the year contribute more than anticipated to mitigating certain pressures on inflation. It is considered that the balance of risks with respect to the expected trajectory of inflation in the forecast horizon remains biased upwards.

The Governing Board evaluated the magnitude and diversity of inflationary shocks and their determinants, as well as the evolution of medium and long-term expectations and the price formation process. He recognized that the disinflationary process has advanced in the country. However, he said that the outlook continues to involve challenges. Based on the above and taking into account the monetary stance already achieved and the persistence of the shocks faced, the Governing Board, with the presence of all its members, unanimously decided to maintain the target for the overnight Interbank Interest Rate at 11.25%. With this decision, the monetary policy stance remains on the path required to achieve inflation convergence to its 3% goal within the forecast horizon.

The Governing Board will closely monitor inflationary pressures, as well as all the factors that affect the expected trajectory of inflation and its expectations. Consider that, To achieve the orderly and sustained convergence of general inflation to the 3% target, it will be necessary to maintain the reference rate at its current level for a certain time.. This is taking into account that, although the outlook is still perceived as complicated, progress has been made in the disinflationary process. The central bank reaffirms its commitment to its priority mandate and the need to persevere in its efforts to consolidate an environment of low and stable inflation.

USD/MXN Price Levels

The price of the Dollar has skyrocketed against the Mexican Peso, rising from 17.53 to 17.68, its highest price in a week. At the time of writing, USD/MXN is trading above 17.67, gaining 0.67% on the day.