Banco de Mexico governors vote to keep overnight interest rate at 3¾%

By Caroline Salls

Pittsburgh, March 18 – The board of governors of Banco de Mexico decided to keep the bank’s overnight interbank interest rate at 3¾%, according to a Friday news release.

The board said the prospects for global growth and recovery continued to deteriorate in February, reflecting the weakening of most advanced economies, a persistent slowdown in emerging markets and stagnation that has been observed in world trade.

In the United States, the bank said some indicators suggest a moderate recovery in activity in the first quarter.

The board said weakness continued in the industrial sector, although a recovery in manufacturing is perceived. Meanwhile, the bank said the labor market continued to improve. As a result of these factors, the bank said headline inflation remains low, and some recovery has been seen.

In its March decision, the Federal Reserve kept its policy rate unchanged, the board said, revealing that increases will be even more gradual than previously anticipated. The Fed also confirmed that future adjustments will continue to depend on the observed and expected evolution of employment and inflation, while economic and global financial conditions continue to pose risks to growth and inflation in the United States.

The bank said concerns about the strength of economic recovery, low inflation and the financial health of banks have increased in the euro area. Consequently, the European Central Bank announced in March more aggressive measures expected to boost inflation and sustain economic recovery monetary easing. The board said the Bank of Japan also continued to implement monetary stimulus measures, reaffirming the expectation of prolonged divergence of monetary policies in the major advanced economies.

As for China, the bank said uncertainty about its financial strength, its growth prospects and the effectiveness of economic policies persists, representing a risk factor for global growth and stability of the international financial system.

In this context, the bank said the risk cannot be excluded that emerging economies, especially those with greater vulnerabilities, face a messy financial adjustment process.

From mid-February to date, the board said there has been a reduction in international financial volatility. In Mexico, the bank said extraordinary measures taken on Feb. 17 by the Secretariat of Finance and Public Credit and Banco de Mexico broke the negative trend of the price of the national currency.

However, the board said another increase in international financial volatility cannot be ruled out.

The board said the pace of expansion of economic activity in Mexico showed a slowdown in recent months compared to the third quarter of 2015. The bank said conditions remain slack in the economy and the labor market.

According to the release, general inflation remains below the target of 3%. In February, the bank said this indicator had a rebound. The board said the increase in overall inflation has also contributed to the gradual increase in core inflation. Medium-term and long-term inflation expectations held steady at 3.3%, the board said.

The bank said annual headline inflation is expected to temporarily increase to slightly more than 3% levels, but overall inflation is expected to close the year near the permanent objective.

By 2017, the board said both headline inflation and core inflation are expected to stabilize around the inflation target.

© 2015 Prospect News.
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