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Rates unchanged in Mexico

Political scenario and rising inflation made Banxico choose stability over cuts

By EC Invest

In Mexico, the central bank left its main interest rate unchanged at 11%, trying to reassure investors who have been quite nervous recently.

Two reasons help to explain this decision. First, the general election of June 2 resulted in a large majority for the ruling party. An outcome was not to the liking of investors, who feared that the State would take over certain strategic sectors of activity.

Rising inflation was also added to the mix. In June, it reached 4.98%, a high level in absolute terms and higher than the 4.69% observed in May.

Therefore, the conditions were clearly not met for Banxico to cut key rates again. The latter has understood this well, showing concern about the rise in prices, which is slow to calm down, but also about the prevailing uncertainty. It prefers the status quo, not wishing to add fuel to the fire.

Mexican stock market on the rise

Gradually, the central bank's caution and reassuring statements from the political world are helping to calm the markets. Having suffered greatly in the aftermath of the elections, the Mexican stock market and the peso have recovered well since then. Over one month, the Mexican stock market gained nearly 9% (in €), driven by the peso, which has been the best-performing currency over this period, gaining nearly 6% against our currency.

Mexico is a market that we continue to find interesting and an option for certain investment strategies.

INFLATION IN MEXICO (Annual change, in %)

ECI MEXICO Rates Unchanged GRAPHIC 920x320

The rebound in inflation and uncertainty are prompting Banxico to keep its key rates unchanged. A decision that investors appreciate.

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