Mexico’s central bank left its benchmark interest rate steady at 7.50 percent, as expected by some but not all economists, saying this decision reflects the recent evolution in inflation, which is largely in line with its expectations.
But as in February, the Bank of Mexico (Banxico) confirmed it would “act in a timely and firm manner” to ensure that inflation and inflation expectations converge to its midpoint target of 3.0 percent.
Banxico last raised its rate by 25 basis points in February but struck a more neutral tone in contrast to earlier hawkish statements as inflation has been decelerating in the last three months while the Mexican peso has been appreciating since late December.
Since the U.S. Federal Reserve began tightening its monetary policy in December 2015, Mexico’s central bank has raised its rate 12 times by a total of 450 basis points to curb the fall in the peso, which has pushed up import prices and thus inflation.
But the peso has been rising this year and inflation in March fell to 5.04 percent – its lowest level since February 2017 – from 5.34 percent in February, with inflation expectations for the end of this year steady and medium- and long-term expectations steady around 3.50 percent.
In February Banxico said it expected inflation to hit its target in early 2019.
Today the peso was trading at 18.2 to the U.S. dollar, up 8.2 percent this year.
Banxico also said the latest economic data showed that economic activity continued to improve in the first months of this year, driven by services and some recovery of industry while exports continued to show a positive trajectory.
However, Mexico’s economy is still facing risks so the balance of risks to growth remains on the downside, the central bank said.
This article originally appeared on CentralBankNews.info and is reproduced here with permission from the author.