Banxico Monetary Policy Statement - 2021-06-24
Central bank: banxico | Type: decision | Date: 2021-06-24

June 24, 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 remains the only official document.
Banco de México’s Governing Board decided to increase the target for the overnight interbank
interest rate by 25 basis points to 4.25%, effective June 25, 2021.
The recovery of global economic activity continued during the second quarter, with heterogeneity across
countries as a result of vaccine availability and stimulus spending. Global inflation continued increasing
due to pressures on various commodity prices, base effects, and other cost-related pressures associated
with bottlenecks in production. The fact that in the United States annual CPI inflation reached 5% in May,
the highest figure since September 2008, is noteworthy. The central banks of advanced economies left
their monetary stimuli unchanged, although it is foreseen that these could be maintained for a shorter
period. After a period of stability, financial markets registered some volatility. At a global level, risks
associated with the pandemic and with higher levels of inflation hastening the withdrawal of monetary
stimuli, persist.
Since the last monetary policy decision, the Mexican peso depreciated, shorter -term interest rates
increased, while longer-term rates decreased. The Mexican economy recovered notably in March and
moderately in April. It is expected to resume its recovery during the rest of the year, with an equilibrated
balance of risks and slack conditions for the economy as a whole, with significant differences across
sectors.
The supply chains and productive processes of several goods and services continue to be affected by
the pandemic. This has caused shocks beyond those foreseen on headline and core inflation, which
reached 6.02% and 4.58%, respectively, during the first fortnight of June. Headli ne and core inflation
expectations for 2021 increased once again and those for the medium and long terms remained relatively
stable at levels above the 3% target.
After incorporating the recent behavior of inflation, the revised forecasts for headline and core inflation
for the next quarters are above those published in the last Quarterly Report . Thus, headline inflation is
now expected to converge to the 3% target during the third quarter of 2022. These forecasts are subject
to risks. On the upside: i) external inflationary pressures ; ii) cost -related pressures or reallocation of
spending; iii) core inflation persistence; iv) exchange rate depreciation; and v) that the drought exerts
pressure on agricultural and livestock product prices . On the downside: i) effects stemming from the
negative output gap; ii) greater social distancing measures; and iii) exchange rate appreciation. The
balance of risks that might affect updating the anticipated path for inflation within the forecast horizon is
biased to the upside.
Although the shocks that have affected inflation are expected to be of a transitory nature, given their
variety, magnitude, and the extended time frame in which they have been affecting inflation, they may
pose a risk to the price formation process. In this context, it was deemed necessary to strengthen the
monetary policy stance in order to avoid adverse ef fects on inflation expectations, attain an orderly
adjustment of relative prices, and enable the convergence of inflation to the 3% target. With the presence
of all its members, the Governing Board decided by majority to increase the target for the overnight
interbank interest rate by 25 basis points to 4.25%. Two members voted for leaving the target unchanged
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.