Mexico and Guatemala continue to hold rates

The Bank of Mexico (Banxico) held its policy rate at 11.25% at its September 27 monetary policy session, the fourth consecutive session it has done so. The five-member board voted unanimously to continue the pause.

Between June 2021 and March 2023, the central bank raised its policy rate by 725 basis points.

In its policy statement, Banxico’s board said inflation was continuing on a downward path, though still above the 3 ±1% inflation target. Headline inflation was 4.4% in the first half of September, it said. Core inflation was somewhat higher than the headline figure, at 5.8%.

Both headline and core readings are lower than in August, when they were 4.6% and 6% respectively. Headline inflation peaked at 8.7% in the third quarter of 2022.

Non-core inflation did rise, but was only 0.5%, a figure the board called “unusually low”.

Banxico leaders said although monetary policy is having an effect, inflation expectations rose for the end of this year. Longer-term expectations did not increase, but still project inflation above the target.

The central bank now believes it will take longer than predicted to guide inflation back to the target. Banxico now expects inflation will only reach the target by the second quarter of 2025.

The board noted earlier inflationary pressures continued to push up prices, “above all in the services component”. Policy-makers also cited “more resilient economic activity that what was earlier anticipated”.

The statement also mentioned the peso had weakened following “volatility”. The peso has depreciated nearly 4% against the US dollar in the last month. After Banxico’s policy decision was announced, the peso appreciated against the US currency.

Because disinflation is proceeding gradually, Banxico policy-makers again stressed, as they did in the minutes of their May meetings, that rates will remain elevated. The board “considers that it will be necessary to maintain the reference rate at its current level for an extended period”. It concluded: “Although the disinflationary process has advanced, the panorama continues to be very complex.”

Some Latin American central banks – notably Brazil and Chile – have begun easing monetary policy stances. Brazil’s central bank lowered its policy rate by 50 basis points at its September meeting, the second straight 50bp cut.

Guatemala holds

The Bank of Guatemala held its policy rate at 5% at its September 27 policy meeting. Like its northern neighbour, it has held the rate steady since April, after 325 basis points of hikes. In a statement, the central bank said year-on-year inflation had fallen to 4.5%, which is within the 4 ±1% target.