Banco de México Leaves Rates Unchanged at Record High 11.25%, Inflation Risks to Upside

The Mexican Central Bank, Banco de México kept interest rates at 11.25% at its June 2023 meeting, in a unanimous decision. The bank said guidance is to hold rate at 11.25% for a prolonged period. The bank still sees balance of risks for the trajectory of inflation within the forecast horizon is considered to be biased to the upside. The Central Bank continues to project that inflation will converge to the 3% target by the fourth quarter of 2024. Headline inflation forecasts have been marginally revised downwards for some quarters, while core inflation projections have remained practically unchanged.

mexico central bank


  • Headline inflation continued decreasing in most economies. Nevertheless, it remains at high levels. The core component has shown a resistance to decline. Several central banks have stopped raising their reference rates. After having left their reference rates unchanged, some advanced economy monetary authorities increased them again.
  • Forecasts for headline inflation were revised marginally downwards for some quarters, while those for core inflation remained practically unchanged. Inflation is still projected to converge to the 3% target in the fourth quarter of 2024.
  • World growth prospects for 2023 continue implying a deceleration, although slightly less intense than previously anticipated. Among key global risks are persistence of inflationary pressures, the worsening of geopolitical turmoil, tighter financial conditions, and, to a lesser extent, the challenges to financial stability.
  • In Mexico, since the previous monetary policy decision, short-term government bond yields decreased while medium- and long-term ones registered limited adjustments.
  • The Mexican peso appreciated.
  • Economic activity has shown resilience in a complex external environment. The labor market remains
  • strong. The balance of risks to growth is equilibrated.
  • Since the last monetary policy meeting, annual headline and core inflation continued decreasing. However, they are still high, registering 5.18% and 6.91%, respectively, in the first fortnight of June. Non- core inflation remained at historically low levels, reaching 0.03% during the same period. Inflation expectations for 2023 showed slight adjustments. Longer-term ones remained relatively stable at levels above target.
Mexico Interest Rate

These forecasts are subject to risks.

On the upside:

  • Persistence of core inflation at high levels.
  • Foreign exchange depreciation due to volatility in international financial markets
  • Pressures on energy prices or on agricultural and livestock product prices;
  • Greater cost-related pressures.

On the downside:

  • A greater-than-anticipated slowdown of the world economy.
  • A lower pass-through effect from some cost-related pressures.
  • A better functioning of production and distribution chains
  • A larger-than-anticipated effect from the Federal Government’s measures to fight elevated prices.

The balance of risks for the trajectory of inflation within the forecast horizon remains biased to the upside

The Governing Board evaluated the magnitude and diversity of the inflationary shocks and their
determinants, along with the evolution of medium- and long-term inflation expectations and the price
formation process. It considered that the disinflationary process is underway given that diverse pressures
have eased. Nevertheless, it deemed that these continue having an incidence on inflation, and thus it
remains high. Also, that the inflationary outlook is still very complex.

Based on the above, and considering the monetary policy stance already attained, with the presence of all its members, the Board decided unanimously to maintain the target for the overnight interbank interest rate at 11.25%. With this decision, the monetary policy stance remains in the trajectory required for inflation to converge to its 3% target within the forecast horizon.

The Board will thoroughly monitor inflationary pressures as well as all factors that have an incidence on the foreseen path for inflation and its expectations. It estimates that the inflationary outlook will be complicated and uncertain throughout the entire forecast horizon, with upward risks. Thus, in order to
achieve an orderly and sustained convergence of headline inflation to the 3% target, it considers that it
will be necessary to maintain the reference rate at its current level for an extended period. The central
bank reaffirms its commitment with its primary mandate and the need to continue its efforts to consolidate an environment of low and stable inflation.

Source: Banco De Mexico

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