July 24, 2021

Banco de México lowers interest rates by 0.25 points and stands at 7.25%



The Bank of Mexico (Banxico) announced on Thursday its decision to lower 0.25 points interbank interest rates to 7.25%, demarking from the Federal Reserve (Fed) of the United States, which last week kept unchanged the types.

"The Governing Board decided by a majority to decrease the target for the Interbank Interest Rate by 25 days at a level of 7.25% by 25 basis points," the country's central bank said in a statement.

In its announcement, the issuing institute argued its decision for "the lowest levels of general inflation," and announced that it will continue to adjust its monetary policy to achieve the objective of 3% inflation.

As explained by Banxico, a member of its Governing Board, consisting of five people, voted to reduce this objective to a level of 7%.

On December 11, the Fed decided to leave unchanged interest rates in the range of between 1.75% and 1.5%, after carrying out three consecutive rebates, and pointed to a long pause in a signal of confidence in the positive exercise of the economy.

The Governing Board of the Bank of Mexico also explained in its report that, during the fourth quarter of the year, the global economy slowed down "and its growth prospects have been revised downwards."

This is in an environment in which general and underlying inflation in the main advanced economies remains at reduced levels and below the goals of their respective central banks.

"In this context, these institutions have maintained accommodative monetary positions," he explained.

Positively, the Mexican issuing institute considered that "some risks to the global economy have been moderated recently due to the preliminary trade agreement reached between China and the United States, the electoral results in the United Kingdom and the signs of stabilization in some prospective indicators."

"However, the balance of risks for global economic activity remains biased downward," he said.

THE SITUATION IN MEXICO

The institution stressed that "financial assets in Mexico and the peso price showed positive behavior," despite the "volatility" of national financial markets unleashed by political crises in Latin America.

"Regarding the risks that could affect the performance of national financial assets, the uncertainty associated with the credit outlook for the rating of Pemex (Petróleos Mexicanos) and sovereign debt, as well as a possible contagion from emerging economies, persists. , mainly from Latin America, "he said.

In addition, Banxico said that "the current environment continues to present risks that could affect the country's macroeconomic conditions."

Therefore, he opted to "follow a prudent and firm monetary policy" and foster "an environment of trust and certainty for investment."

The Bank of Mexico said that "it is estimated that the weakness that economic activity has been registering for several quarters persists."

General inflation in November was 2.97%, at the goal of the Bank of Mexico, and according to the most recent surveys it will remain at similar levels in the medium and long term, although somewhat higher than 3%.

However, upward risks persist – such as increases in the minimum wage – and downward, such as an appreciation of the Mexican peso against the dollar.

"In the presence and possible persistence of factors that, by their nature, imply a risk for inflation and their expectations, monetary policy will be adjusted in a timely and firm manner to achieve the orderly and sustained convergence of this to its 3% objective. ", concluded the Governing Board.

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