Mexico’s central bank hails economy’s resilience, but talk of rate cut ‘is not on the table’
MEXICO CITY, Aug 30 (Reuters) – Mexico’s central bank raised its economic growth forecasts for 2023 and 2024, citing the resilience of Latin America’s economy but remained adamant that a cut in the country’s record-high interest rate was not likely anytime soon .
Banxico, as Mexico’s central bank is known, raised its growth forecast for 2023 to 3.0% in its quarterly report on Wednesday, up from 2.3% in the previous report. It also revised its economic growth forecast for 2024 from 1.6% to 2.1%.
Banxico’s board of directors noted in the report that Mexico’s strong labor market and domestic spending are contributing to the economy’s “resilience”.
However, the report reiterated earlier wording that the board would need to keep its policy rate at its all-time high for an “extended period” to bring stubborn inflation down to the bank’s target range.
For Alberto Ramos, chief economist for Latin America at Goldman Sachs, the report shows that Mexico’s economy is “in full swing”, underscoring the need for a “conservative monetary policy stance”.
“The central bank needs to maintain a tight monetary policy stance to cool the economy somewhat and support ongoing inflation momentum,” Ramos said in a research note.
Banxico kept Mexico’s interest rate steady at 11.25% earlier this month for the third straight month after annual inflation slowed to 4.79% for the sixth straight month in July.
Falling inflation elsewhere in Latin America has prompted central banks to start cutting interest rates, including in Brazil and Chile.
But in Mexico, “the discussion about whether we’re going to cut the interest rate isn’t on the table yet,” Banxico Governor Victoria Rodriguez said during the report’s presentation.
Banxico’s board needs more time and stronger evidence that inflation is consolidating at its target level, she added.
Wednesday’s report also warned that despite revisions to economic growth, “economic activity is still expected to slow…in line with expected behavior for the US economy.”
The bank also slightly lowered its headline inflation forecast for the final quarter of 2023 from 4.7% to 4.6% previously.
However, the core inflation forecast for the quarter was raised slightly to 5.1% from 5.0% previously.
Reporting by Brendan O’Boyle; Edited by Jonathan Oatis and Stephen Coates
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