Bank of Mexico keeps rates at 11.25%

The Bank of Mexico’s (Banxico) governing board maintained interest rates unchanged in a unanimous decision following its monetary policy meeting, it announced on November 9.

The reference rate remains at 11.25%. Although officials acknowledged inflationary pressures are weakening, they warned interest rates will have to remain in restrictive territory in order to bring inflation down to the 3% target within the projection horizon.

The central bank paused its cycle of rate increases in May, after increasing the policy rate by 725 basis points starting in June 2021.

In October, headline inflation increased year on year by 4.3% in October while core inflation excluding food and energy prices rose by 5.5%.

The policy statement stressed non-core inflation remained at “unusually low levels”. Last month, it increased by just 0.6% from the same month in 2022.

The easing of supply-side shocks stemming from the pandemic and the Russian invasion of Ukraine, along with the monetary policy stance, have contributed to inflation’s downward trend, the board said.

Indeed, “the forecasts continue anticipating that both headline and core inflation will remain on a downward trend”, added the statement. The central bank expects inflation to reach the 3% inflation target in the second quarter of 2025.

Nonetheless, Banxico is not expected to reduce interest rates any time soon. The board deems risks remain biased to the upside. In fact, it considers that the reference rate must be maintained at the current level “for some time”.

The central bank identifies a set of risks that could boost inflation in the near future. These include core inflation remaining at high levels, the peso weakening more than forecast, increasing cost pressures, the economy expanding more rapidly than expected, and energy and food prices rising faster than forecast.

The board also thinks it possible that the outlook turns out to be more positive for it to reach the inflation target. Downside risks include a stronger economic slowdown, a weaker pass-through effect from cost-related pressures, and that the weak exchange rate recorded in early 2023 has a greater year-on-year effect than forecast.

Banxico’s final monetary policy decision of the year will be announced on December 14.