Mexico central bank says pause in interest rate cuts doesn't mean easing cycle over

MEXICO CITY: A pause in the Bank of Mexico's monetary policy easing cycle at its last meeting does not mean the cycle has ended and board members will be on the lookout for conditions that allow to resume it, minutes of that policy meeting showed on Thursday.

Banxico, as the bank is known, kept its key interest rate unchanged at 4.0pc as expected at its last policy meeting on March 25, and said inflation will now likely be slightly higher in the coming months than previously forecast.

All five of Banxico's board members highlighted that monetary policy must ensure the anchoring of inflation expectations, and that headline and core inflation follow a downward trend.

"Most members mentioned that this pause in the easing cycle does not mean that said cycle has ended, and that looking ahead they will be aware in case the conditions allow for continuing it," the minutes said.

The minutes pointed out that while monetary policy might contribute to the recovery, it must do so without jeopardizing price stability.

Mexican consumer prices rose 4.67pc in the year through March due to an increase in fuel prices, to their highest level since December 2018 and above Banxico's target range, data showed on Thursday.

The minutes underscored that domestic economic activity decelerated in January and February, with most members saying the deceleration was due a spike in the pandemic, the implementation of new mobility restrictions and supply disruptions of certain products.

Most members highlighted that the manufacturing sector, particularly the automotive industry, was affected by a shortage of semiconductors.

"Some timely indicators point to a contraction during the first quarter of 2021," the minutes said.

Mexico's economy contracted by 8.5pc in 2020, its deepest dive in almost 90 years, due to the ravages of the COVID-19 pandemic.

However, the economy recovered quicker than first estimated in the final quarter of 2020.