The Mexican central bank is quite concerned about the upside risks for inflation. However, inflation eased a bit in January to 4.4 percent. Furthermore, the initial estimates showed that the economic growth was very moderate in the fourth quarter. Therefore, the Bank of Mexico kept the key interest rate on hold at 8.25 percent during its meeting in February. Also, the U.S. monetary policy might have been another important factor in that decision. During its last meeting, the U.S. Fed had ended its rate hike cycle.
According to a Commerzbank research report, the Mexican central bank is expected to keep its key interest rate unchanged until the end of 2019. Inflation is expected to gradually move towards the Banxico’s target rate of 3 percent. Two new central bankers were already present during the February meeting. While Jonathan Heath’s new appointment was seen positively on the FX market, Gerardo Esquivel was seen with scepticism. Nevertheless, Esquivel's influence on the five-member board is expected to be restricted, so the new composition of the board should only signify a slight shift towards dovish.
“Accordingly, the statement was again very cautious with regard to the inflation outlook. Even though the central bank has positioned itself more neutrally, it makes it clear that if the outlook deteriorates again, it is still prepared to act”, added Commerzbank.
