Mexico City.- The volatility of the Mexican peso this month influenced the decision of the Bank of Mexico (Banxico) to keep its reference rate stable on Thursday, acknowledged the Governor of the central bank, Victoria Rodríguez, but affirmed that progress in efforts to combat inflation They have created room to make cuts in the future.
“I would say that we continue in a phase in which the progress in the disinflationary process and the degree of monetary policy restriction that we have allow us to discuss cuts to the reference rate,” Rodríguez said in an interview with Bloomberg after Thursday’s decision.
“Looking ahead, what we are seeing is that we will have room to reduce the degree of restriction. Reducing the rate does not mean that we will stop being restrictive,” he added.
Given its potential effects on inflation, the depreciation of the peso could also influence how Banxico weighs future cuts.
The Governor declined to say whether Banxico would consider making cuts as early as August.
“The volatility of the exchange rate has reduced and is now returning to the levels observed before the episode of recent financial turbulence,” Rodríguez highlighted.
The central bank’s Governing Board stated in its monetary policy statement on Thursday that while the depreciation of the peso may contribute to inflation, it is partly offset by a weaker economy.
The peso plummeted in early June after Claudia Sheinbaum won the presidential election, a factor in Bank of Mexico’s decision to keep its key interest rate at 11.00 percent.
Exchange rate volatility following the June 2 election has seen the peso lose more than 7 percent of its value this month.
Victoria Rodríguez mentioned that, for its decision, Banxico also took into account the recent acceleration of general inflation and the moderate adjustment to price increase forecasts.
Banxico made a first cut to its rate in March and then decided to maintain it in May and now in June. The decision was widely expected after the volatility that followed the election, as investors are concerned that Morena’s coalition majority in Congress would allow him to change the Constitution.
Among other factors considered by Banxico was that the weakness of the Mexican economy seen at the end of 2023 turned out to be “deeper and more prolonged” than the members of the Board had anticipated, the Governor accepted.
Banxico waited longer than other major Latin American central banks to begin easing its monetary policy. In the statement that accompanied Thursday’s decision, the central bank said it was open to discussing further interest rate cuts if the inflation outlook permitted.
Banxico now projects that the Country will reach its inflation target of 3 percent until the end of 2025.
#Banxico #Governor #sees #room #rate #cuts