Mexico joins other EM central banks and raises rate

      Mexico's central bank surprised economists by joining the growing number of emerging market central banks that are tightening monetary policy in the face accelerating inflation by raising its key interest rate, adding the next rate move would depend on the expected trajectory of inflation and inflation expectations.
     The Bank of Mexico (Banxico) raised its target for the overnight interbank interest rate by 25 basis points to 4.25 percent, returning the rate to the level it was from September last year until February this year when the rate was cut for the 12th time to boost economic activity and inflation.

      In March and May Banxico's board adopted a data-dependent approach to monetary policy as economic activity remained sluggish amid the COVID-19 pandemic, rendering the outlook for inflation uncertain.

      But with the number of vaccines increasing, demand is slowly recovering while global energy and commodity prices have soared, boosting inflation in Mexico to above Banxico's 3.0 percent target.

      Nevertheless, after Mexico's inflation rate eased in May to 5.89 percent from 6.08 percent in April, economists dialed back expectations for Mexico to follow other emerging market central banks, such as Brazil and Russia that have already raised rates three times this year.

      Illustrating the surprise to financial markets from Banxico's rate hike, Mexico's peso shot up almost 1 percent to 19.79 to the U.S. dollar to be 0.5 percent higher on the year.

      After an unprecedented loosening of monetary and fiscal policy last year to cushion economies from the COVID-19 pandemic, central banks are slowly tightening.

      Mexico becomes the 17th central bank to raise its interest rates this year and the 3rd emerging market central bank this week alone, following in the footsteps of the Czech Republic and Hungary.

      Banxico's governing board only narrowly approved the rate hike, with two of its five members voting to maintain the rate.

      Although Banxico still expects the shocks that have pushed up inflation - such as higher commodity prices, base effects, supply bottlenecks - to be of a "transitory nature," it realizes they may still pose a risk to prices due to the magnitude, variety and extended time frame of these shocks.

     "In this context, it was deemed necessary to strengthen the monetary policy stance in order to avoid adverse effects on inflation expectations, attain an orderly adjustment of relative prices, and enable the convergence of inflation to the 3% target," the bank said.

      Banxico added inflation in coming quarters was seen above forecasts in its last quarterly report and headline inflation was now first seen converging to its 3.0 percent target in the third quarter of 2022 instead of in the second quarter.

     "The Mexican economy recovered notably in March and moderately in April," the bank said, adding it is expected to continue recovering the rest of the year.

      Looking to the U.S., Banxico said the rise in U.S. inflation to 5 percent in May was "noteworthy," and while central banks in advanced economies have left their stimulus unchanged, "it is foreseen that these could be maintained for a shorter period."

     While the Federal Reserve's change in its outlook for interest rates last week triggered a rise in global bond yields and the U.S. dollar, markets have stabilized this week but Banxico said there are still risks that higher levels of inflation could hasten the withdrawal of monetary stimulus.

Mexico cuts key rate as inflation seen easing in H2

     Mexico's central bank returned to the path of monetary easing, as expected, saying the latest economic data shows it has room to cut its key interest rate while maintaining the forecast for inflation to move toward its target of 3.0 percent.

     The Bank of Mexico (Banxico) cut its target for the overnight interbank interest rate by 25 basis points to 4.0 percent in its first rate cut since September last year after which it paused after seven rate cuts times starting in February in response to the outbreak of the COVID-19 pandemic.

     Since August 20129, when Banxico began unwinding 500-basis points of rate hikes in the three years from December 2015 to December 2018, the rate has been now cut by 425 points. 

     Looking ahead, the central bank said monetary policy will depend on the evolution of those factors that impact headline and core inflation.

     Mexico's inflation rate rose to 3.54 percent in January this year from a 7-month low of 3.15 percent in December but the central bank said the pandemic has had a significant impact on prices, putting upward pressure on merchandise inflation and downward pressure on service inflation.

     Inflation is expected to rise further in the second quarter due to the comparison with the fall in energy prices last year but then begin to decline in the second half of the year, the bank added.

     "Headline inflation expectations for the end of 2021 were adjusted slightly upwards and those for the medium and long term remain stable at levels above the 3% target," the central bank said.

     Mexico's economy shrank 8.8 percent in 2020 with gross domestic product in the fourth quarter of last shrinking by an annual 4.5 percent compared with a decline of 8.6 percent in the third quarter and a 18.7 percent contraction in the second quarter.

Mexico cuts rate 5th time as risks remain to downside

     Mexico's central bank cut its benchmark interest rate for the fifth time this year, saying the risks to the economy remain to the downside and there is persistent uncertainty about the economic recovery after a considerable impact from the Covid-19 pandemic.
     The Bank of Mexico, known as Banxico, cut its target for the overnight interbank interest rate by another 50 basis points to 7.0 percent and has now cut it 225 points this year following cuts in February, March, April and May.
     It is also Banxico's 9th rate cut since August 2019 when it began to unwind some of rate hikes - a total of 500-basis-points - between December 2015 and December 2018. Since August last year the rate has been cut 325 points.
     The bank's board said its decision today was unanimous and future actions will be based on the impact on economic activity from the Covid-19 pandemic and the evolution of the financial shock so the policy rate is consistent with inflation around Banxico's target.
     Mexico's economy has contracted in the last four quarters, with gross domestic product in the first quarter down 1.2 percent from the previous quarter.
     In late May Banxico forecast the economy would contract as much as 8.8 percent this year.
     Banxico said the reopening of parts of the economy in May and June will lead to some recovery though the impact of the pandemic have been "considerable and uncertainty persists" and growth risks remain significantly biased to the downside.
     Mexico's inflation rate rose to 2.84 percent in May and 3.17 percent in the first half of June from 2.15 percent in April and the central bank said expectations are for inflation to remain above its 3.0 percent goal.

     www.CentralBankNews.info

Mexico cuts rate 8th time, 4th rate cut this year

     Mexico's central bank lowered its benchmark interest rate for the fourth time this year, as expected, saying it had room to ease its monetary policy stance further in light of falling inflation and a considerable contraction of economic activity.
     The Bank of Mexico, known as Banxico, cut its target for the overnight interbank interest rate by another 50 basis points to 5.50 percent and has now cut it 175 basis points this year following cuts in February, March and April.
     Since August 2019, when Baxico began to unwind some of the 500-basis points hikes from December 2015 to December 2018, the rate has been cut eight times by 275 points.
     The bank's governing board was unanimous in its decision.
      Mexico's gross domestic product shrank another 1.6 percent in the first quarter from the previous quarter, the fifth quarter of contraction, and the central bank said the effects of the pandemic expected to intensify during the second quarter, resulting in a significant decline in employment.
     The slack in the economy is therefore continuing to widen while the balance of risks to growth remain biased to the downside.
      Mexico's inflation rate also fell in April to 2.15 percent from 3.25 percent in March as energy and gasoline prices fell, pushing down short-term inflation expectations.
      "The challenges for monetary policy posed by the pandemic include both the unprecedented impact on economic activity as well as those associated with the financial shock that we are currently facing," Banxico said.
       The downside risks to inflation come from a widening of the output gap and the impact of lower energy prices while a greater and more persistent depreciation of the peso and possible disruptions to production and distribution of certain goods pose upside risks, which means the balance of risks to inflation remain uncertain, the central bank said.

Mexico cuts rate 5th time, global risks still to downside

     Mexico's central bank lowered its benchmark interest rate for the fifth time, saying the balance of risks to the global economy remain to the downside due to a range of uncertainties, "including the effects of the recent coronavirus outbreak," despite a further easing of global financial conditions.
     The Bank of Mexico, known as Banxico, cut its target for the overnight interbank interest rate by 25 basis points to 7.0 percent and has now cut it five times and by a total of 125 points since July 2019 when it began to unwind some of the 500-point rate hikes in the three years from December 2015 to December 2018.
     "Economic slowdown, low inflation, accommodative monetary policies, and lower interest rates continue to prevail in the world economy," said the central bank, adding the bank's board was unanimous in its decision.
     In a new and more concise policy statement, aimed at getting is message more easily across to the public, Banxico said the prevalence of external and domestic risks could affect domestic financial markets, adding the peso's exchange rate and yields on government securities had fallen in recent weeks.
      Economic activity in Mexico has stagnated for several quarters, and the economy is is now seen growing less than forecast in the third quarter quarterly report, the central bank said, without providing further details.
     In its quarterly inflation report released in November Banxico lowered its estimate of 2019 economic growth to between a contraction of 0.2 percent and growth of 0.2 percent, down from an earlier forecast of 0.2 - 0.7 percent growth.
     In the fourth quarter of 2019, Mexico's gross domestic product shrank an annual 0.3 percent, the same as in the third quarter, with growth for the full year estimated to contract 0.1 percent, sharply down from 2018 growth of 2.1 percent.
     For 2020 Banxico cut its growth forecast to 0.8 - 1.8 percent from 1.5 - 2.5 percent and forecast growth in 2021 of 1.3 - 2.3 percent.
     In January Mexico's consumer price inflation rate rose 3.24 percent, within the central bank's target of 3.0 percent, plus/minus 1 percentage point.
     The central bank has recently warned that a 20 percent hike in minimum wages by Mexico's government in December, the second major increase in as many years, could push up inflation and make it difficult to bring inflation down to its target this year.
     Mexico's peso has been rising this year and rose further after the rate cut to 18.63 to the U.S. dollar, up 1.6 percent this year.

Mexico cuts rate 3rd time in 2019, 2 vote for 50 bps cut

     Mexico's central bank cut its benchmark interest rate for the third time in a row, citing low inflation, ample slack in the economy and the recent behavior of external and domestic bond yields.
     The Bank of Mexico (Banxico) cut its target for the overnight interbank interest rate by another 25 basis points to 7.50 percent and has now cut it by 75 points this year as it continues to unwind some of the 15 rate hikes with 500 points of increase between December 2015 and December 2018.
     As in September, two members of the central bank's board voted to cut the rate by a larger 50 basis points.
     Banxico said it would maintain a "prudent monetary policy stance" and closely follow the potential pass-through of exchange rate fluctuations to domestic prices, Mexico's relative monetary policy stance in a global environment that is still subject to risks, the behavior of slack conditions and cost-related pressures in the economy.
     Despite easier monetary policy by central banks in advanced economies, such as the U.S. Federal Reserve and the European Central Bank, which has boosted international financial markets, Banxico said risks to the global economy from trade tensions and geopolitical factors, along with political and social unrest in several countries, persists and the balance of risks remain to the downside.
     Economic data for the third quarter shows that economic activity is continuing to stagnate, implying that economic slack has widened more than expected, so economic growth for this year and 2020 is likely to be lower than forecast in the June quarterly report, the bank said.
     In its second quarter inflation report, Banxico cut its 2019 growth forecast for the fifth time to a range of 0.2 to 0.7 percent from 0.8 to 1.8 percent in the first quarter report. The 2020 outlook was cut to between 1.5 and 2,.5 percent from 1.7 to 2.7 percent.
     On an annual basis, Mexico's gross domestic product shrank 0.4 percent in third quarter following a 0.8 percent contraction in the first quarter.
     Inflation in October rose slightly to 3.02 percent from 3.0 percent in September, with the trajectory suggesting inflation might be below the outlook in the June quarterly report in which the bank forecast 3.2 percent inflation for the end of the year, within its target of 3.0 percent, plus/minus 1 percentage point.

Mexico cuts rate 25 bps, two vote for 50 bps cut

     Mexico's central bank lowered its benchmark interest rate for the second month in a row, citing the decline in inflation, ample slack in the economy and lower domestic interest rates, factors that are consistent with the convergence of inflation to its target.
     The Bank of Mexico (Baxico) cut its target for the overnight interbank interest rate by another 25 points to 7.75 percent and has now cut it by 50 points this year following a similar cut in August, when the rate was cut for the first time in just over 5 years.
     Between December 2015 and December 2018 Banxico raised its rate 15 times to curb inflation from a peso that was weakened by the rising U.S. dollar and higher U.S. interest rates.
     But in the wake of the U.S. Federal Reserve's pivot toward easier monetary policy in January this year, Banxico also shifted its policy stance
     The bank's governing board was split in its decision, with 2 of its members voting to cut the rate by 50 basis points.
     "The current environment continues to pose significant risks that could affect the country's macroeconomic conditions, its ability to grow, and the economy's price formation process," Banxico said, calling on measures to address the deterioration of the credit ratings of both Mexico and Pemex, and the achievement of fiscal targets for 2019 and 2020.
     Mexico's inflation rate dropped to a 2019-low of 3.16 percent in August from 3.78 percent in July, continuing the decline since hitting 5 percent in September 2018 and 7 percent in December 2017.

Mexico cuts rate 1st time in 62 months on growth risks

     Mexico's central bank lowered its policy rate for the first time in 62 months, saying inflation has decreased as it expected but the economy continues to stagnate and uncertainty about the relationship with the United States continues to pose a risk to economic growth.
     The Bank of Mexico (Banxico) cut its benchmark target for the overnight interbank interest rate by 25 basis points to 8.0 percent, its first rate cut since June 2014 following 15 rate hikes from December 2015 through December 2018 in response to a weakening peso and inflationary pressures.
      But in the wake of the U.S. Federal Reserve's change of course in late January this year to a more dovish stance, which resulted in a rate cut on July 31, Baxico also shifted its policy stance and is now following the Fed and 53 other central banks that have eased their policy stance this year.
     Banxico said a majority of its board member had voted to cut the rate, deciding that a lower interest rate is consistent with inflation converging toward its target of 3.0 percent. One board member voted to maintain the rate.
     The board added that it would maintain a prudent monetary policy stance during the current environment of uncertainty and closely follow the potential pass-through of fluctuations to the exchange rate to consumer prices along with the behavior of economic slack and price pressures.
     Noting the deceleration in world economic activity along with U.S. trade disputes, the central bank said the balance of risks to the world economy had deteriorated, and while the peso has fluctuated, interest rates on government securities have fallen and the latest data suggest weaker demand has widened the economy's slack more than expected so the balance of risks to economic growth remains biased to the downside.
      In July Mexico's inflation rate eased to 3.78 percent from 3.95 percent though inflation expectations remained relatively stable while the economy shrank 0.7 percent year-on-year in the second quarter after growth of 1.2 percent in the first quarter.

Mexico holds rate, as expected, continues prudent stance

     Mexico's central bank kept its benchmark target for the overnight rate unchanged at 8.25 percent, as expected, reiterating that it will "maintain a prudent monetary policy stance" and closely follow any potential pass-through of exchange rate fluctuations to prices, the monetary policy stance relative to the U.S. and the slack in the country's economy.
     The Bank of Mexico (Banxico) most recently raised its rate in December, following the U.S. Federal Reserve's 9th rate hike since December 2015, and has raised the rate 15 times by a total of 5.25 percentage points.
     Analysts had expected Banxico to maintain its rate today after the Fed on Jan. 30 changed course and said it would be patient in further rate hikes along with an appreciation of the Mexican peso since early December.
     The peso was largely steady to firmer in response to Baxico's decision to trade at 19.1 to the U.S. dollar, up 2.9 percent this year.
     Noting the general slowdown in the world economy, the central bank said Mexico's economy had decelerated significantly in the fourth quarter from the third quarter and this could continue in the beginning of 2019, with the balance of risks to growth biased to the downside.
     Mexico's economy slowed to annual growth of 1.8 percent in the fourth quarter from 2.5 percent in the third quarter.
     Inflation fell to 4.37 percent in January from 4.83 percent in December, with expectations for headline inflation in the medium and long term still above the central bank's 3.0 percent target, at around 3.50 percent.
      Considering the balance of risks for inflation, including the risk pressure on the peso, along with pressures on energy or agricultural pries, the central bank said inflation risks remain to the upside.

Mexico maintains rate as core inflation trends downward

      Mexico's central bank left its benchmark target for the overnight interbank rate at 7.75 percent as it expects core inflation to continue its downward trend while the shocks that boosted headline inflation, such as energy-related products, are considered to be of a transitory nature.
      The Bank of Mexico (Banxico), which has raised its rate 13 times and by a total of 4.75 percentage points since December 2015 when the U.S. Federal Reserve started its series of rate hikes,  raised its forecast for headline inflation to end this year at 4.25 percent from a previous forecast of 4.0 percent while the forecast for 2019 inflation was unchanged around 3.60 percent.
      In the long run, Banxico estimated inflation around 3.50 percent, above its 3.0 percent target.
      Mexico's headline inflation rate rose slightly to 4.65 percent in June from 4.51 percent in May while core inflation, which strips out some food and energy prices, eased to 3.62 percent from 3.69 percent.
      Despite the general trend of a stronger U.S. dollar, Mexico's peso has appreciated since mid-June and was less volatile, reflecting reduced uncertainty following the July 1 elections, in which Andres Manuel Lopez Obrador was elected president, and an improvement in the outlook for the renegotiations over the North American Free Trade Agreement (NAFTA), Banxico said.
      The peso was trading at 18.64 to the dollar today, up 5.8 percent this year.
      Mexico's economy slowed in the second quarter as exports weakened and the central bank estimated that growth for the full year would be in the lower half of the estimated range of 2 - 3 percent, which means that slack conditions would loosen further.
      Banxico's governing board view the balance of risks to growth had a bias to the downside.
      Mexico's Gross Domestic Product shrank by 0.1 percent in the second quarter from the first quarter but grew 2.7 percent on a year-on-year basis.

Mexico hikes rate 25 bps, peso worsens inflation outlook

      Mexico's central bank raised its benchmark interest rate by a further 25 basis points to 7.75 percent, as expected, as a fall in the peso's exchange rate in the last two months has worsened the outlook for inflation.
      The Bank of Mexico (Banxico) has now raised its rate 13 times and by a total of 475 basis points since December 2015 when the U.S. Federal Reserve started tightening its policy, putting downward pressure on the peso's exchange rate which then raises import prices and inflation.
       After raising the rate in February, its first and only rate hike this year, Banxico held fire in April and May as inflation decelerated and fell to a 2018 low of 4.51 percent in May while inflation expectation for this year also eased.
       "Nevertheless, some of the upside risks to inflation identified by the Central Bank have started to materialize," the central bank said, pointing to the depreciation of the peso along with rising prices of gasoline and LP gas.
       The balance of risks to inflation have thus deteriorated and could delay the decline in inflation toward the central bank's target of 3.0 percent.
       "Looking ahead, the Governing Board will maintain a prudent monetary policy stance and will continue to follow closely the potential pass-through of exchange rate fluctuations to prices, the monetary policy stance relative to that of the U.S., and the conditions of slack in the Mexican economy," Banxico said.
      In response to the rate hike, the peso rose against the U.S. dollar and was trading at 20.24 to the dollar, down 2.8 percent this year. Compared with the start of 2016, the peso has lost 14 percent.
      In sync with most currencies, the peso has come under pressure from the stronger U.S. dollar, propelled by the Fed's two rate hikes this year, and a more hawkish stance adopted last week.
     Uncertainty over NAFTA negotiations, U.S. tariffs on steel and aluminum and Mexico's general election in July has also contributed to peso weakness.
      Mexico's economy has slowed since early 2017 but Banxico said it was in a better position now to cope with adverse scenarios and it gained strength in the first quarter.
      But overall, the central bank still thinks the balance of risks to growth remain to the downside.
      Mexico's economy grew by 1.1 percent in the first quarter of this year from the fourth quarter but on an annual basis growth eased to 1.3 percent from 1.5 percent.

Mexico maintains rate, still ready to act in timely manner

       Mexico's central bank left its benchmark interest rate steady at 7.50 percent, as expected by some but not all economists, saying this decision reflects the recent evolution in inflation, which is largely in line with its expectations.
       But as in February, the Bank of Mexico (Banxico) confirmed it would "act in a timely and firm manner" to ensure that inflation and inflation expectations converge to its midpoint target of 3.0 percent.
       Banxico last raised its rate by 25 basis points in February but struck a more neutral tone in contrast to earlier hawkish statements as inflation has been decelerating in the last three months while the Mexican peso has been appreciating since late December.
       Since the U.S. Federal Reserve began tightening its monetary policy in December 2015, Mexico's central bank has raised its rate 12 times by a total of 450 basis points to curb the fall in the peso, which has pushed up import prices and thus inflation.
       But the peso has been rising this year and inflation in March fell to 5.04 percent - its lowest level since February 2017 - from 5.34 percent in February, with inflation expectations for the end of this year steady and medium- and long-term expectations steady around 3.50 percent.
       In February Banxico said it expected inflation to hit its target in early 2019.
       Today the peso was trading at 18.2 to the U.S. dollar, up 8.2 percent this year.
       Banxico also said the latest economic data showed that economic activity continued to improve in the first months of this year, driven by services and some recovery of industry while exports continued to show a positive trajectory.
        However, Mexico's economy is still facing risks so the balance of risks to growth remains on the downside, the central bank said.

       www.CentralBankNews.info

Mexico raises rate 25 bps, but strikes less hawkish tone

      Mexico's central bank raised its benchmark interest rate by a further 25 basis points to 7.50 percent, as expected, but struck a more neutral tone than in December by saying it would act in a timely and firm manner "if necessary" to anchor inflation expectations and meet its inflation target.
      Today's policy statement by the board of Bank of Mexico (Banxico) compares with its hawkish statement in its previous statement when it said it would be "vigilant" and act as soon as possible to anchor inflation expectations and achieve the inflation target, given the intensification of the risks that could affect inflation.
      It is Banxico's first rate hike this year but it has now raised its rate by a total of 450 basis points since December 2015 when the U.S. Federal Reserve began tightening its policy.
      Illustrating the more balanced guidance, the bank's board was unanimous in today's policy decision compared with December when the bank also raised the rate by 25 basis points but one member voted to raise it by 50 basis points.
       The board said today's hike took into consideration the more restrictive monetary conditions that are expected in North America in order to maintain a stance that anchors inflation expectations and reinforces the downward trend of inflation toward the bank's 3.0 percent target.
       Mexico's inflation rate decelerated to 5.55 percent in January from 6.77 percent in December and Banxico said it expects inflation to continue to ease and approach its 3.0 percent target during the year and then reach it by the first quarter of 2019.
       This is later than the central bank had expected, but it said this delay was due to the impact of the price of some energy products, fruits and vegetables that had pushed up inflation in recent months.

      www.CentralBankNews.info

Mexico holds rate, NAFTA poses risk to inflation, growth

      Mexico's central bank maintained its benchmark at 7.0 percent, as widely expected, saying uncertainty from the renegotiation of North American Free Trade Agreement (NAFTA) poses an upside risk to inflation and a downside risk to economic growth.
       But the Bank of Mexico (Banxico), which had kept its rate steady since June, also said it expects inflation to continue to decline for the rest of this year, with the trend then accelerating next year so inflation converges towards the bank's 3.0 percent target towards the end of 2018.
       Banxico has raised its rate by 400 basis points since December 2015 when the U.S. Federal Reserve began tightening its monetary policy for the first time since the global financial crises.
       Mexico's headline inflation rate rose slightly to 6.37 percent in October from 6.35 percent in September, continuing to drop from a high of 5.0 percent in August, as the central bank expected.
       Core inflation in October was was steady at 4.8 percent and Banxico expects it to remain above 4.0 percent this year and then decelerate to moderately above 3.0 percent by the end of next year.
       However, the central bank underlined its inflation forecast is subject to the risk of a fall in the peso's exchange rate in the event of an "unfavorable evolution of the NAFTA negation process" or an adverse reaction to the normalization of monetary policy in the U.S.
       After firming in the first half of this year, the peso has depreciated since late September and trading has turned more volatile in response to U.S. monetary policy, possible U.S. fiscal expansion and uncertainty regarding the outcome of NAFTA talks. The interest rate differential between the U.S. and Mexico has also risen, the central bank added.
      U.S. President Donald Trump has threatened to withdraw from NAFTA if talks don't lead to improved trading conditions for the U.S.
      The peso was trading around 19.05 to the dollar today, still up 8.7 percent this year.
      Mexico's economy has slowed down this year, with Gross Domestic Product shrinking 0.2 percent in the third quarter from the second quarter for annual growth of only 1.6 percent, down from 1.9 percent in the second quarter and 3.2 percent in the first quarter.

     www.CentralBankNews.info

Mexico raises rate 25 bps as risks to inflation worsen

    Mexico's central bank raised its benchmark interest rate for the third time this year prevent higher inflation and anchor inflation expectations risks to inflation had deteriorated "moderately."
     The Bank of Mexico (Banxico) has now raised its rate by 375 basis points since the U.S. Federal Reserve began normalizing its policy stance in December 2015, by 100 points this year and by 150 points since the election of Donald Trump as U.S. president.
     The rate cut came as a surprise to many economists who had expected the central bank to keep its rate steady in light of the rise in the peso. Banxico's benchmark target for the overnight interbank rate now stands at 6.75 percent.
     But the central bank is clearly worried that rising inflation, from past depreciation of the peso, will spark second-round effects on other prices and wages.
     Mexico's headline inflation rate rose to a higher-than-expected 5.82 percent in April from 5.35 percent in March, well above the bank's midpoint target of 3.0 percent. It was the 10 consecutive month of rising inflation, with prices boosted by higher food and energy prices following a rise in regulated gasoline prices at the start of the year.
     Baxico noted that the rise in core inflation to 4.72 percent in April from 4.48 percent due to the impact of past peso depreciation and price adjustments and a non-core inflation rate of 9.25 percent, which reflects both energy prices and higher prices of some agricultural products.
     Although inflation expectations remain largely stable, the central bank expects inflation to continue to be affected by higher motor transport rates and some agricultural products as well as the accumulated impact of peso depreciation so it will remain above its range of 2.0 to 4.0 percent.
     However, during 2018 inflation is expected to resume its fall toward the 3.0 percent target.
     The central bank noted the "significant appreciation" of the peso compared with the beginning of this year and although volatile remains high, it was lower than in the first quarter.
     Mexico's peso began falling in mid-2014, in sync with the fall in crude oil prices, and hit a historic low of almost 22 to the U.S. dollar in mid-January this year. The fall in the peso has pushed up import prices and thus inflation. 
    But since January the peso has appreciated sharply, supported by Baxico's rate hikes and expectations that Trump will not impose major tariffs on Mexican exports. 
    Today the peso was trading at 18.79 to the dollar, up 10.4 percent this year.
     Mexico's economy grew by an annual rate of 2.7 percent in the first quarter of this year, up from 2.4 percent in the fourth quarter of last year, despite weakness in public and private investment form uncertainty over the relationship with the United States, the central bank said.

    www.CentralBankNews.info

    

Mexico raises rate another 25 bps in wake of Fed hike

    Mexico's central bank raised its benchmark target for the overnight interbank rate by another 25 basis points to 6.50 percent to anchor inflation expectations and ensure inflation converges toward its 3.0 percent target while taking into account higher U.S. interest rates.
     The Bank of Mexico (Banxico) has now raised its rate by 350 basis points since the U.S. Federal Reserve began its tightening cycle in December 2015, by 125 points since the November 2016 election of Donald Trump as U.S. President and by 75 points this year.
     It is Baxico's seventh rate hike since December 2015 but only the second time the rate has been raised by 25 basis points, with all other rate hikes amounting to 50 points. The only other time the rate was raised by 25 points was in December 2015.
     The decision to raise the rate by the central bank's board was unanimous and expected by financial markets following the Federal Reserve's most recent rate hike on March 15.
     Going forward, the central bank said it would closely following the factors affecting inflation and inflation expectations, how changes to the exchange rate may affect inflation, the relative monetary position between the U.S. and Mexico, and the output gap.
     Mexico's peso began falling in mid-2014, in sync with the fall in crude oil prices, and hit a historic low of almost 22 to the U.S. dollar in mid-January. 
    But since then the peso has appreciated sharply, supported by Baxico's rate hikes and less pessimism about the prospects for trade between the U.S. and Mexico, and was trading at 18.7 to the dollar today, up almost 11 percent this year.
     Last year's depreciation of the peso and higher energy costs have pushed up Mexico's inflation rate but the central bank said investors expect this rise to be temporary with long-term inflation expectations around 3.5 percent.
     Mexico's inflation rate rose to 4.86 percent in February from 4.72 percent in January and the central bank expects it to remain the upper limit of its target range of 2-4 percent during this year but then decelerate and by close to 3 percent by the end of 2018 as the effects of shocks fade.
     However, the central bank also this forecast is subject to many risks, including second-order effects on inflation from higher energy prices and depreciation of the peso that feeds into inflation expectations. 
    Mexico's economy continued to expand in early 2017, the bank said, pointing to external demand and private consumption, although there were some signs this was slowing.
    Mexico's Gross Domestic Product grew by an annual rate of 2.4 percent in the fourth quarter of last year while economic activity grew by an annual 3 percent in January after a 2.1 percent rise in December.

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Mexico raises rate another 50 bps to brake rising inflation

    Mexico's central bank raised its benchmark target for the overnight interbank rate by another 50 basis points to 6.25 percent to anchor inflation expectations and prevent that a drop in the value of the peso spills over to consumer prices and leads to even higher inflation.
     The Bank of Mexico (Banxico) has now raised its rate by 325 basis points since the U.S. Federal Reserve's rate hike in December 2015 and by 100 basis points since the election of Donald Trump as U.S. President.
    Going forward, the central bank said it would continue to follow all the factors that are influencing inflation along with expectations, and especially the potential transfer of changes to the exchange rate to prices, along with the cost of gasoline, the output gap, and the relative monetary position between Mexico and the U.S.
    Mexico's inflation rate jumped to 4.72 percent in January to the highest level since September 2012 , boosted by a rise in energy costs following a government hike in gasoline prices and rising import costs from the lower peso.
    Banxico said short-term inflation expectations have risen "significantly" in response to higher energy prices but doesn't expect this to have a widespread impact as medium-term expectations have risen far less while longer-term expectations remain around 3.5 percent.
    For the remainder of this year the central bank expects inflation to remain in the upper limit of its target range of 2-4 percent but then converge towards its midpoint target in the final months.
    By the end of next year inflation is seen to be temporarily affected by the impact of the deprecation and the liberalization of gasoline prices but generally converge toward the 3.0 percent midpoint target as demand is not expected to exert any upward pressure on inflation.
   However, Banxico added that this forecast is subject to the risk that inflation expectations rise even further from additional depreciation of the peso, uncertainty in the external environment and that energy prices rise even further.
    Downside risks to inflation stem from a possible appreciation of the peso, lower prices in connection with structural reforms, lower energy prices from greater competition among gasoline suppliers in Mexico and that economic activity decelerates even more than expected.
    "The balance of risks are considered to have continued to deteriorate," the bank said.
    Mexico's peso has weakened since November 2014 with its fall accelerating following the election of Trump, who plans to build a wall between the two countries and renegotiate the North American Free Trade (NAFTA) agreement.
    But since mid-January the peso has rebounded and rose by 0.5 percent following the latest rate hike to trade at 20.4 to the U.S. dollar, up 1.5 percent this year. But compared with the start of 2016, the peso has depreciated by 15.7 percent against the dollar.
    Baxico noted the Federal Reserve left its fed funds rate steady at its meeting last week but added the process of normalizing its monetary stance could take place faster than was expected at the end of last year, partly reflecting the Trump administration's intention to expand fiscal policy through higher infrastructure spending and tax reform.
    Mexico's economy rebounded in the fourth quarter of last year as external demand improved and private consumption remained positive. 
    However, investment remains weak and the relationship between Mexico and the United States could be hampered as part of U.S. policy under Trump, which has already affected consumer and business confidence, foreign direct investment and remittance flows.
    "The risk balance of growth continued to deteriorate," the central bank said.
    Mexico's Gross Domestic Product grew by an annual rate of 2.2 percent in the fourth quarter of 2016, up from 2.0 percent in the third quarter but down from 2.6 percent in the second.

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Mexico raises rate 50 bps to curb inflation pressure

    Mexico's central bank raised its benchmark target for the overnight interbank rate by another 50 basis points to 5.75 percent to counter additional inflationary pressures from the potential transfer to consumer prices from the lower peso and ensure that inflation converges to its target following the U.S. Federal Reserve's rate hike yesterday.
    The Bank of Mexico (Banxico), which has now raised its rate by 275 basis points since the Fed's first rate hike last December, added the country is facing an "uncertain" environment due to the economic policies that may be implemented in the U.S. and this may trigger episodes of volatility.
    In this context, the central bank said it was especially relevant that authorities strengthen Mexico's macroeconomic fundamentals, maintain fiscal consolidation efforts, implement structural reforms and adjust the monetary policy stance in a timely manner.
    Despite a slowdown in industrial production in recent months and stagnant investments, Banxico said there were signs of a revival of the economy in the third quarter as external demand improved while private consumption increased its rate of expansion.
     Mexico's Gross Domestic Product expanded by 1.0 percent in the third quarter for annual growth of 2.6 percent, up from 2.3 percent in the second quarter as weakness in industrial output was compensated by an improvement in the services sector.
     The central bank said recent changes in the Fed's policy, along with expected changes in U.S. fiscal policy, had led to a significant rise in the U.S. dollar against virtually all currencies, helping mitigate deflationary fears in the euro area and Japan and possibly leading the less accommodative monetary policies going forward.
  Mexico's peso has been weakening steadily since November 2014 and accelerated sharply following the election of Donald Trump as U.S. president, who has said he wanted to build a wall between the two countries and renegotiate the North American Free Trade (NAFTA) agreement.
    Although the peso fell immediately in response to the Fed's rate increase on Dec. 14, the peso reversed course today following news of Baxico's rate hike and was trading at 20.42 to the U.S. dollar, down from a record low of 20.7 this morning.
    But since the start of this year the peso is down almost 16 percent against the dollar.
    Mexico's inflation rate rose to 3.31 percent in November from 3.06 percent in October, mainly due to the effect of the peso's depreciation and higher cost of food, housing and transportation.
     With gasoline prices slowly being liberalized and an increase in minimum wages in January, the central bank expects inflation to temporarily rise before converging back to its 3.0 percent target in 2018.

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Mexico raises rate 50 bps to curb inflation from peso fall

    Mexico's central bank raised its benchmark target for the interbank overnight rate by another 50 basis points to 5.25 percent to counter inflationary pressures and dampen inflation expectations and said it would continue to keep a close eye on the impact of the lower peso to consumer prices in order to take any necessary measures to keep inflation close to its 3.0 percent target.
    The Bank of Mexico, which has now raised its rate by 225 basis points following the U.S. Federal Reserve's rate hike last December, said the possible implementation of measures that would hinder trade between the U.S. and Mexico had worsened the balance of risks facing Mexico's economy.
   Also, there has been a clear rise in inflation expectations in response to an expected expansionary fiscal policy by the Trump administration, which has strengthened the arguments in favor of an increase in rates by the Federal Reserve in December and a more accelerated pace of rate hikes, and of a higher than anticipated size of rate hikes, the central bank said.
    Mexico's inflation rate rose to 3.06 percent in October as underlying inflation is responding to the depreciation of the peso, with inflation expectations showing a moderate rise.
    Although the central bank said financial markets were still pricing in inflation of around 3 percent - the central bank's target - for 2016, 2017 and by the end of 2018, it added that this forecast was subject to the risk that the deprecation of the peso would persist, generating second-order effects that have an adverse impact on prices.
     The peso has been under pressure against the U.S. dollar since November 2014 and fell to record lows in the wake of the election victory of Donal Trump, who has threatened to renegotiate trade deals with Mexico and build a wall between the two countries.
    The peso fell around 11 percent to 20.7 per U.S. dollar after Trump's victory and was trading slightly higher today at around 20.4 to the dollar following the central bank's rate hike.

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Mexico raises rate 50 bps, not start of tightening cycle

     Mexico's central bank raised its benchmark target for the interbank overnight rate by 50 basis points to 4.75 percent, as expected by many economists, to counter inflationary pressures and anchor inflation expectations but added that this hike should not be seen as the start of a rate tightening cycle.
    The Bank of Mexico, which has now raised its rate four times by a total of 175 basis points since the U.S. Federal Reserve's 25-point hike last December, added that it would closely follow all factors that determine inflation and inflation expectations, especially the transfer the peso's exchange rate to consumer prices, along with the relative monetary position to the U.S. and the economy's output gap.
    The peso fell to a record low of almost 20 to the U.S. dollar earlier this week but gained back some ground following a debate between the two U.S. presidential candidates.
    The peso has dropped as polls earlier this month showed that Republican candidate Donald Trump - who wants to renegotiate a trade deal with Mexico and build a wall between the two countries - had gained on his Democratic rival, Hillary Clinton.
    The central bank said the peso had "showed a significant depreciation and high volatility" among emerging market currencies since its last board meeting in August and there is a risk that volatility could return to financial markets if there is nervousness about the possible implications for Mexico from the U.S. presidential election.
    Today the peso was trading at 19.48 to the U.S. dollar, down 11.7 percent this year.
    Mexico's inflation rate rose to 2.73 percent in August from 2.65 percent in July but the central bank said it expects inflation to slowly rise over the next few months and end the year slightly above its 3.0 percent target.
    By 2017 headline and underlying inflation is seen around the inflation target though the central bank added that the short-term balance of risks to inflation have deteriorated as depreciation of the peso cannot be ruled out along with sudden increases in agricultural goods.
    The balance of risks to the economy have also deteriorated, the bank said, as the growth in private consumption slowed while investment and external demand was weak and the industrial sector has remained stalled.
    Mexico's Gross Domestic Product shrank by 0.2 percent in the second quarter from the first for annual growth of 2.5 percent, up from 2.4 percent in the first quarter.

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