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Fed’s decision represents an additional challenge for Banxico

Fed’s decision represents an additional challenge for Banxico

Two weeks ago, the Fed raised its reference interest rates by half a percentage point, days later, on May 12, Banxico decided to raise its rate in the same proportion, so it stood at 7%.

Borja highlighted that the US central bank has also announced that it will reduce its balance sheet starting next June.

“Then we will be very attentive to the possible effects that may be generated, both in the formation of prices, on the one hand, and in the stability of the financial system of each economy,” he commented.

From the perspective of the deputy governor of Banxico, the balance of risks for inflation has remained on the rise in recent months and therefore it is necessary that it acquire a more neutral character, and help inflation to converge.

“For this reason, in our last monetary policy statement we used, in effect, a more descriptive tone and the possibility of acting more forcefully if necessary (…) the actions of a central bank do not instantly affect the variables in those who are looking to go and it is necessary to pay attention not only to the observed inflation data, but also to the expected determinants”, he commented.

As highlighted in Banxico’s May 12 monetary policy announcement, the deputy governor expects inflation to converge to the goal set by the Mexican central bank by 2024.

“We estimate that there is a convergence of inflation to its variability interval during the next year, focusing specifically on the mass of inflation of three percent during the first quarter of 2024”, detailed Deputy Governor Borja.

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He specified that a gradual decrease in these pressures will begin to be seen throughout the forecast horizon; that is, within the next eight quarters.