The Bank of Mexico's governing board struck a more dovish tone at its March 29 monetary policy meeting, with board members discussing the possibility that the bank's rate-hiking cycle may have reached its end, minutes from the meeting showed Thursday. Banxico, as the Mexican central bank is known, hiked its benchmark interest rate by 25 basis points to 11.25% at that meeting, moderating the pace of a tightening cycle that began in mid-2021.
The minutes removed language from the February meeting minutes explicitly mentioning the possibility of future upward adjustments to the key rate. Instead, the minutes said that "for its upcoming decision, the board will take into account the inflation outlook, considering the monetary policy stance already attained." The language leaves open the possibility Banxico could keep the benchmark rate unchanged at its upcoming May 18 monetary policy meeting. That would be the bank's first rate hold after 15 straight hikes. One of Banxico's five board members "estimated that during the upcoming monetary policy decision it will be determined whether the evolution of data allows to confirm the level of 11.25% as the terminal rate or if an additional adjustment is required," the minutes showed, without naming the board member.
Once that level has been reached, during the next phase of the monetary cycle, the interest rate will need to remain steady for long enough to consolidate the convergence of inflation to Banxico's target of 3%, plus or minus 1 percentage point, the board member added.
Regarding forward guidance, another board member said the environment of high uncertainty calls for a cautious approach and favors a flexible policy stance, adding that based on current prospects, the reference to future increases may be omitted.
All five board members said the inflation outlook for Mexico remains complex and uncertain, though they acknowledged that some pressures are easing. Additionally, most members pointed out that external pressures have diminished but that core inflation continues showing persistence and remains at high levels. Banxico has raised its key interest rate by 725 basis points since June 2021 to combat inflation. (Reporting by Brendan O'Boyle and Anthony Esposito; Editing by Chizu Nomiyama)
