June, Bank of Mexico (BOM) reviewed and summarized as follows:
2024-07-03
■ BOM maintained the policy interest rate at 11.00% according to market expectations, but one policy committee member suggested a rate cut.
■ BOM's internal vigilance toward rising inflation has slowed down, and it is once again considering the possibility of interest rate cuts.
The Bank of Mexico announced the results of its financial policy meeting on June 27th. Consistent with market expectations, BOM has decided to maintain the policy interest rate at 11.00% for the second consecutive time. This decision, while in line with market expectations, also indicates a potential stability in the economic outlook. However, compared to the policy meeting in May, BOM's concerns about rising inflation have eased, and there are signs of reconsidering interest rate cuts.
There are two critical points to this change: (1) the voting situation of policy commissioners and (2) the wording change regarding the inflation outlook. In terms of voting, unlike the unanimous decision to maintain policy interest rates at the previous May policy meeting, Vice President Mejia\ advocated a 25-basis point rate cut in this meeting. Although this does not immediately indicate that the BOM will lower interest rates immediately, it shows signs of changes within the BOM to reopen interest rate cuts.
Regarding the inflation outlook, some indicators in the statement have been raised compared to May. However, the upward adjustment period is limited to the overall index, expected to peak between July and September this year, while the core index (excluding food and energy) continues to rise from July to September this year to January and March 2025. Although the statement retained the statement that "the balance of inflation track risk is still shifting upwards," it removed the wording of vigilance against rising inflation in the service industry. This removal should instill confidence in the audience about the BOM's inflation control measures.
The statement also pointed out that since early June, the Mexican peso exchange rate has fluctuated significantly due to specific factors. The statement also mentioned the recent improvement trend in the domestic financial market. Although there are still discussions about the expansion of fiscal spending and constitutional reform by the left-wing ruling party, at least for now, in Mexico, there is no opposition between the government and the central bank, which is a positive factor for the peso exchange rate.
Although political factors need to be cautious before the US presidential election in November this year, if Mexico's Consumer Price Index (CPI) annual increase rate can remain within the BOM inflation target range (2-4%), then increasing market expectations for interest rate cuts may push the peso exchange rate to remain stable.
■ BOM's internal vigilance toward rising inflation has slowed down, and it is once again considering the possibility of interest rate cuts.
The Bank of Mexico announced the results of its financial policy meeting on June 27th. Consistent with market expectations, BOM has decided to maintain the policy interest rate at 11.00% for the second consecutive time. This decision, while in line with market expectations, also indicates a potential stability in the economic outlook. However, compared to the policy meeting in May, BOM's concerns about rising inflation have eased, and there are signs of reconsidering interest rate cuts.
There are two critical points to this change: (1) the voting situation of policy commissioners and (2) the wording change regarding the inflation outlook. In terms of voting, unlike the unanimous decision to maintain policy interest rates at the previous May policy meeting, Vice President Mejia\ advocated a 25-basis point rate cut in this meeting. Although this does not immediately indicate that the BOM will lower interest rates immediately, it shows signs of changes within the BOM to reopen interest rate cuts.
Regarding the inflation outlook, some indicators in the statement have been raised compared to May. However, the upward adjustment period is limited to the overall index, expected to peak between July and September this year, while the core index (excluding food and energy) continues to rise from July to September this year to January and March 2025. Although the statement retained the statement that "the balance of inflation track risk is still shifting upwards," it removed the wording of vigilance against rising inflation in the service industry. This removal should instill confidence in the audience about the BOM's inflation control measures.
The statement also pointed out that since early June, the Mexican peso exchange rate has fluctuated significantly due to specific factors. The statement also mentioned the recent improvement trend in the domestic financial market. Although there are still discussions about the expansion of fiscal spending and constitutional reform by the left-wing ruling party, at least for now, in Mexico, there is no opposition between the government and the central bank, which is a positive factor for the peso exchange rate.
Although political factors need to be cautious before the US presidential election in November this year, if Mexico's Consumer Price Index (CPI) annual increase rate can remain within the BOM inflation target range (2-4%), then increasing market expectations for interest rate cuts may push the peso exchange rate to remain stable.