Banxico Points to Uncertainty as Major Monetary Policy Factor

Geopolitical uncertainty is a major concern for Mexico’s economic development, writes the Bank of Mexico (Banxico) in its most recent in-depth economic analysis. The bank explains that 2023 is expected to be complex due to high inflation, weakening economic activity and geopolitical uncertainty. 

Banxico’s executive summary for 4Q22, presented on March 1, 2023, highlights that Mexico must maintain its macroeconomic solidity, fiscal discipline, a healthy and resilient financial system and a monetary policy focused on achieving price stability. The report analyzes the external environment, the evolution of the economy and monetary policy decisions. During the first months of 2023, Mexico faced a complex and uncertain environment, which was reflected in the changes to monetary policy, explains Banxico in its website. 

The bank’s governing board indicated that it would continue changing Mexico’s monetary policy to promote the adjustment of relative prices, taking into account the financial markets and the economy, among other areas. Banxico’s main objective is to lead inflation to its 3% goal, while preserving anchoring inflation expectations. Mexico’s internal growth relies on adopting measures to promote a “propitious” environment that can attract investments. Banxico highlighted that the adequate allocation of resources will allow the Mexican economy to increase its productivity. 

“Part of this effort requires continuing to strengthen the rule of law and fighting insecurity. All this would not only make the national economy more resilient before the anticipated deceleration of external demand, but it would also lay the foundations for greater growth and a long economic development deadline that would allow for greater well-being for all the population,” says Banxico. 

Jonathan Heath, Deputy Governor, Banxico, recently indicated that the interest rate is unlikely to surpass 12% in 2023, arguing that he expects inflation to end below 5% by the end of the year. Banxico’s latest data forecasts that interest rates will be between 11.25% and 11.75% for the end of 2023, as reported by MBN.