Banxico is expected to continue to lower interest rates – El Financiero

The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican peso (MXN), and to set monetary policy. To that end, its main objective is to keep inflation low and stable within target levels – at or near its 3% target, the midpoint in a tolerance band of 2% to 4%.

Banxico’s main tool for guiding monetary policy is setting interest rates. When inflation is above target, the bank will try to tame it by raising interest rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. Conversely, lower interest rates tend to weaken the MXN. The USD rate differential, or how Banxico is expected to set interest rates compared to the US Federal Reserve (Fed), is a key factor.

Banxico meets eight times a year, and its monetary policy is heavily influenced by the decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually meets a week after the Fed. In doing so, Banxico reacts to and sometimes anticipates the monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did so first in an attempt to lessen the chances of a substantial depreciation of the Mexican peso (MXN) and prevent potentially destabilizing capital outflows country.