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Bank of Mexico to release interest rate decision


Bank of Mexico to release interest rate decision

Bank of Mexico
Photo: Reuters

The Central Bank of Mexico (BdeM) is expected to release an interest rate decision today, with the rate likely staying at its current level of 4.25%.

Defying expectations of one further rate cut, the BdeM maintained the 4.25% interest rate in November. This was likely due to inflation hitting 4.1%, well above the 3% target. As the BdeM feels out the current inflationary trend, it is thus likely that no further rate cuts are planned in the short-term.

Mexico’s economy has shown signs of recovery, likely another reason for holding the interest rates steady. The economy grew 12.1% between July and September of this year, benefitting from eased COVID-19 restrictions and stimulus spending in the US. Nevertheless, with stagnating industrial activity and 0.9% expected growth in the fourth quarter, recovery is too slow.

Economic stagnation makes it likely that BdeM will cut rates further in mid-2021, particularly if inflation holds. With President Lopez Obrador refusing to pass a wide stimulus, arguing that a lighter debt load will make recovery easier, rate cuts are the only tool left to spark growth, which will be needed after the Mexican economy posts a 9% contraction at the end of this year.

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