Mexican Central Bank Preview: Responding to Interest Rate Reduction Expectations
2023-09-29
■The Mexican central bank is expected to maintain policy interest rates at its policy meeting in September to curb expectations of premature rate cuts.
■ Mexico should be seen as adjusting the use of the "Higher for Longer" policy, similar to European and American countries.
Tomorrow (September 28th), the Bank of Mexico (Central Bank, BOM) will announce the results of the Financial Policy Decision Conference (hereinafter referred to as the Policy Conference). The market expects the policy interest rate to remain unchanged at 11.25% for the fourth consecutive meeting. The market will closely monitor whether BOM will maintain a cautious attitude towards interest rate cuts as it did last time. Like other major Central and South American countries, the central banks of Brazil, Chile, and Peru have implemented interest rate cuts.
Looking back at the information since the last policy meeting in August, BOM once again emphasized the policy of "keeping policy interest rates unchanged for the long term" in its quarterly report released on August 30th. In addition, the economic growth forecast mentioned in the report has improved compared to May's forecast in 2023 (increased from 2.3% to 3.0%) and 2024 (increased from 1.6% to 2.1%), but the forecast for the rise of the Consumer Price Index (CPI) has not changed significantly, indicating that they are still wary of inflation. Although the year-on-year growth rate of the comprehensive CPI for the period from April to June 2023 was 5.7%, and the core CPI (excluding food and energy) was the same 7.3%, which is lower than the predicted value in May (the same 6.0%, the same 7.4%), they have not changed their prediction that the CPI increase will slow down to the same 3.1% during the period from October to December 2024.
Therefore, although the current CPI inflation rate has significantly slowed down, I predict that BOM will continue to adhere to the policy of "maintaining policy interest rates unchanged for the long term" while maintaining policy interest rates unchanged. The latest August CPI growth rate is 4.64% year-on-year, while the core CPI is 6.08% year-on-year. However, the inflation target range of BOM (2-4%) is still higher than these levels. In addition, according to the minutes of the August policy meeting, many members warned that "there is still no clear downward trend in the inflation rate of the service industry", and the increase in CPI in August also indicates that service prices remain at a high level of 5.15%.
Based on the above views, it can be seen that Mexico, like European and American countries, has not yet revoked the "Higher for Longer" policy principle, but is adjusting its usage.
■ Mexico should be seen as adjusting the use of the "Higher for Longer" policy, similar to European and American countries.
Tomorrow (September 28th), the Bank of Mexico (Central Bank, BOM) will announce the results of the Financial Policy Decision Conference (hereinafter referred to as the Policy Conference). The market expects the policy interest rate to remain unchanged at 11.25% for the fourth consecutive meeting. The market will closely monitor whether BOM will maintain a cautious attitude towards interest rate cuts as it did last time. Like other major Central and South American countries, the central banks of Brazil, Chile, and Peru have implemented interest rate cuts.
Looking back at the information since the last policy meeting in August, BOM once again emphasized the policy of "keeping policy interest rates unchanged for the long term" in its quarterly report released on August 30th. In addition, the economic growth forecast mentioned in the report has improved compared to May's forecast in 2023 (increased from 2.3% to 3.0%) and 2024 (increased from 1.6% to 2.1%), but the forecast for the rise of the Consumer Price Index (CPI) has not changed significantly, indicating that they are still wary of inflation. Although the year-on-year growth rate of the comprehensive CPI for the period from April to June 2023 was 5.7%, and the core CPI (excluding food and energy) was the same 7.3%, which is lower than the predicted value in May (the same 6.0%, the same 7.4%), they have not changed their prediction that the CPI increase will slow down to the same 3.1% during the period from October to December 2024.
Therefore, although the current CPI inflation rate has significantly slowed down, I predict that BOM will continue to adhere to the policy of "maintaining policy interest rates unchanged for the long term" while maintaining policy interest rates unchanged. The latest August CPI growth rate is 4.64% year-on-year, while the core CPI is 6.08% year-on-year. However, the inflation target range of BOM (2-4%) is still higher than these levels. In addition, according to the minutes of the August policy meeting, many members warned that "there is still no clear downward trend in the inflation rate of the service industry", and the increase in CPI in August also indicates that service prices remain at a high level of 5.15%.
Based on the above views, it can be seen that Mexico, like European and American countries, has not yet revoked the "Higher for Longer" policy principle, but is adjusting its usage.