Banxico Monetary Policy Statement - 2020-02-13
Central bank: banxico | Type: decision | Date: 2020-02-13

Banco de México’s Governing Board has decided to lower the target for the overnight interbank
interest rate by 25 basis points to 7%.
Economic slowdown, low inflation, accommodative monetary policies, and lower interest rates continue
to prevail in the world economy. Although in this context global financial conditions have continued to
loosen, the balance of risks for world economic activity remains biased to the downside due to several
factors of uncertainty, including the effects of the recent coronavirus outbreak. In this context, over the
last weeks the peso exchange rate appreciated and interest rates on government securities of all
maturities decreased. Nevertheless, external and domestic risks prevail which could affect the
performance of domestic financial markets.
Economic activity in Mexico has remained stagnant for several quarters, with a generalized weakness in
aggregate demand components. Thus, slack conditions have continued to widen. Based on most recent
data, GDP in 2020 is foreseen to grow less than estimated in the Quarterly Report July-September 2019,
with a balance of risks biased to the downside.
Between November 2019 and January 2020 annual headline inflation rose from 2.97% to 3.24%, mainly
due to the increase in the non-core component from 0.98% to 1.81%, while core inflation did so from
3.65% to 3.73%. Core inflation was affected by the increase in the prices subject to the excise tax (IEPS,
for its acronym in Spanish) and continues to show resistance to decline. Short-, medium- and long-term
headline inflation expectations have remained relatively stable, albeit at levels above 3%, while core
inflation expectations for the same terms were revised upwards.
In light of the recent behavior of the factors affecting the foreseen path of inflation, headline and core
inflation are expected to be moderately above the forecasts published in the last Quarterly Report.
Regarding risks to the foreseen trajectory for inflation, those prevailing to the upside include: core
inflation’s resistance to decline; wage increases affecting the labor market and prices; a possible
exchange rate adjustment due to external or domestic factors; increases in agricultural and livestock
prices greater than expected; and a deterioration of public finances. A s for downside risks : a further
appreciation of the peso exchange rate; lower international prices of energy goods due to the coronavirus
outbreak; and a greater economic slack . In this context, uncertainty still persists regarding the balance
of risks for the referred trajectory of inflation.
With the presence of all its members, Banco de México’s Governing Board decided unanimously to lower
the target for the overnight interbank interest rate by 25 basis points to 7%. To this end, the current levels
of headline inflation, the inflation outlook within the time frame in which monetary policy operates , the
greater amount of economic slack, and the recent behavior of external and domestic yield curves, were
considered.
The Governing Board will take the necessary actions based on incoming data so that the policy rate is
consistent with the orderly and sustained convergence of headline inflation to Banco de México’s target
within the time frame in which monetary policy operates . To strengthen the macroeconomic framework
and the country´s growth capacity, in addition to a prudent monetary policy, public finances must be
consolidated in a sustainable way.