A Reuters poll revealed that the Bank of Mexico, also known as Banxico, is expected to keep interest rates steady at 7% at its March 26 meeting amid concerns about war in the Middle East.
If Banxico keeps interest rates unchanged, it will be the second time the central bank has opted for a wait-and-see approach after cutting rates 12 times since the start of the monetary policy easing cycle.
The survey revealed that 16 of 28 economists expect Mexico’s key benchmark rate to remain unchanged, while a minority of participants – including analysts from Goldman Sachs and JPMorgan – predict a resumption of Banxico’s monetary easing cycle, even as the central bank’s Governing Council raised inflation expectations.
Eleven respondents expect a reduction of 25 basis points to 6.75%, including the already mentioned Bank of America and Barclays, as well as one local analyst who predicts an interest rate boost of 25 basis points to 7.25%.
(This story was corrected on March 20 at 21:02 GMT to say that eleven respondents expect a reduction of 25 basis points to 6.75%, rather than eleven respondents expecting a reduction of 25 basis points to 6.25%).
Frequently asked questions about Banxico
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to protect the value of Mexico’s currency, the Mexican peso (MXN), and set monetary policy. To this end, its main goal is to keep inflation low and stable within its targets – at or near the 3% target, i.e. halfway through the tolerance range of 2% to 4%.
Banxico’s main tool for directing monetary policy is setting interest rates. When inflation is above target, the bank will try to tame it by raising interest rates, which will make it more high-priced for households and businesses to borrow money and thus nippy the economy. Higher interest rates are generally positive for the Mexican peso (MXN) because they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. A key factor is the US dollar interest rate differential, which is how Banxico sets interest rates compared to the US Federal Reserve (Fed).
Banxico meets eight times a year, and its monetary policy is largely influenced by the decisions of the US Federal Reserve (Fed). That’s why the central bank’s decision-making committee usually meets a week after the Fed meeting. In this way, Banxico responds to and sometimes exceeds the monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised interest rates, Banxico was the first to do so in an attempt to reduce the chances of a significant depreciation of the Mexican peso (MXN) and prevent capital outflows that could destabilize the country.
