Banxico Monetary Policy Statement - 2020-09-24
Central bank: banxico | Type: decision | Date: 2020-09-24

September 24, 2020
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 lower the target for the overnight interbank
interest rate by 25 basis points to 4.25%, effective September 25, 2020.
Global economic activity has been recovering, while inflation in advanced economies remains below their
central banks’ targets. Monetary policy is expected to remain accommodative in those economies for an
extended period. Particularly relevant is the announcement by the US Federal Reserve of a new
monetary policy strategy that will maintain the monetary stimulus until inflation is moderately above its
2% target. The world economy and international financial markets are subject to several risks , among
which are those associated with the pandemic.
Since the last monetary policy decision, the Mexican peso appreciated slightly , although it has recently
been subject to episodes of high volatility, while short-term interest rates decreased and long-term ones
exhibited minor adjustments . After having contracted markedly in April and May, economic activity in
Mexico began to recover in June and July, although an environment of uncertainty and downward risks
prevails. Ample slack conditions are expected throughout the time frame in which monetary policy
operates.
Annual headline inflation rose from 3.62% to 4.10 % between July and the first fortnight of September
2020, due to increases in both its non-core and core components. Energy prices increased slightly while
there was a recomposition of core inflation, with services inflation remaining low and merchandise
inflation increasing. Headline inflation expectations for the end of 2020 rose while those for the medium
and long terms remained stable at levels above the 3% target.
The challenges for monetary policy posed by the pandemic include both the significant impact on
economic activity as well as a financial shock and their effects on inflation. Although the recent increases
in headline and core inflation affect their foreseen trajectories in the short term, both are expected to be
around 3% within the 12-24 month forecast horizon. These forecasts are subject to considerable risks in
the short and medium terms. To the downside: i) a greater than expected impact of the widening of the
negative output gap; ii) downward inflationary pressures worldwide; and iii) social distancing measures
reducing the demand for certain services. To the upside: i) additional episodes of foreign exchange
depreciation; ii) a high persistence of core inflation; and iii) logistical problems and higher costs
associated with the sanitary measures. The balance of risks for the projected trajectory of inflation
remains uncertain.
Taking into account the refe rred risks for inflation, economic activity and financial markets, major
challenges arise for monetary policy and for the economy in general. Based on the foreseen scenarios
for inflation and considering the room for maneuver, although narrow, that on balance these provide to
monetary policy, with the presence of all members , Banco de México’s Governing Board decided
unanimously to lower the target for the overnight interbank interest rate by 25 basis points to a level of
4.25%. Monetary policy implementation will depend on the evolution of the factors that have an incidence
on the outlook for inflation and its expectations, including the effects that the pandemic might have on
both of them.
The Governing Board will take the necessary actions on the bas is of incoming information and
considering the large impact on productive activity as well as the evolution of the financial shock that we
are currently facing. The latter in order for the policy rate to be 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. Perseverance in strengthening the macroeconomic fundamentals and adopting the
necessary actions regarding both monetary and fiscal polici es will contribute to a better adjustment of
domestic financial markets and of the economy as a whole.