Bank of Mexico to release interest rate decision

The Central Bank of Mexico (BdeM) is expected to release an interest rate decision today, with the rate likely staying at its current level of 4.25%.

Defying expectations of one further rate cut, the BdeM maintained the 4.25% interest rate in November. This was likely due to inflation hitting 4.1%, well above the 3% target. As the BdeM feels out the current inflationary trend, it is thus likely that no further rate cuts are planned in the short-term.

Mexico’s economy has shown signs of recovery, likely another reason for holding the interest rates steady. The economy grew 12.1% between July and September of this year, benefitting from eased COVID-19 restrictions and stimulus spending in the US. Nevertheless, with stagnating industrial activity and 0.9% expected growth in the fourth quarter, recovery is too slow.

Economic stagnation makes it likely that BdeM will cut rates further in mid-2021, particularly if inflation holds. With President Lopez Obrador refusing to pass a wide stimulus, arguing that a lighter debt load will make recovery easier, rate cuts are the only tool left to spark growth, which will be needed after the Mexican economy posts a 9% contraction at the end of this year.