Banxico Monetary Policy Statement - 2021-03-25
Central bank: banxico | Type: decision | Date: 2021-03-25

March 25, 2021
This document is provided for the reader’s convenience only. The translation from the official Spanish version was made by
Banco de México’s staff. Discrepancies may possibly arise between the original document in Spanish and its English translation.
For this reason, the original Monetary Policy Statement in Spanish is the only official document.
Banco de México’s Governing Board decided to maintain the target for the overnight interbank
interest rate at 4.00%.
Global economic activity continued to recover heterogeneously across countries and sectors. Financial
markets exhibited volatility and US medium - and long-term interest rates increased in response to the
large fiscal stimulus package approved and expectations of higher growth. Inflation in advanced
economies increased recently, although it remains below the targets of their central banks, which
reiterated that they will maintain accommodative monetary policy stances. Among the most relevant
global risks are the pandemic, delays in the vaccination programs, and a greater tightening of financing
conditions.
Since the last monetary policy decision, the Mexican peso depreciated and medium - and long-term
interest rates increased. Mexico’s economic activity decelerated in January and February and, although
a greater boost from external demand is foreseen, ample slack conditions are expected throughout the
forecast horizon.
Annual headline inflation increased from 3.54% in January to 4.12 % during the first fortnight of March
and core inflation rose from 3.84% to 4.09% during the same period. Headline inflation expectations for
the end of 2021 were adjusted upwards and those for the medium and long terms remained stable at
levels above the 3% target.
The anticipated paths for headline and core inflation in the short term are slightly above those foreseen
in the last Quarterly Report, although they are still expected to converge to the 3% target as of the second
quarter of 2022. Over the next months, headline inflation will be temporarily affected by the arithmetic
effects generated by last year’s fall in energy prices. These forecasts are subject to risks. On the upside:
i) a recomposition of spending towards merchandise or cost-related pressures; ii) episodes of exchange
rate depreciation; and iii) external inflationary pressures. On the downside: i) effects stemming from the
negative output gap; ii) greater social distancing measures; and iii) foreign exchange appreciation.
In a highly uncertain environment, the risks for inflation, economic activity and financial markets pose
major challenges for monetary policy. It is necessary to enable an orderly adjustment of financial
conditions and a change in relative prices , without affecting price formation and inflation expectations.
Considering the abovementioned inflation forecasts, the risks they are subject to, as well as the need to
consolidate a downward trajectory for headline and core inflation to the 3% target, with the presence of
all its mem bers, the Governing Board decided unanimously to maintain the target for the overnight
interbank interest rate at 4.00%. Looking ahead, monetary policy implementation will depend on the
evolution of the factors that have an incidence on inflation, on its foreseen trajectories within the forecast
horizon, and on its expectations.
The Governing Board will take the necessary actions based on incoming information in order for the
policy rate to be consistent with the orderly and sustained convergence of headline inflation to the 3%
target within the time frame in which monetary policy operates. It is necessary to safeguard the
institutional framework, strengthen the macroeconomic fundamentals and adopt the necessary actions
on both monetary and fiscal policy fronts, to enable a better adjustment of domestic financial markets
and of the economy as a whole.