Banxico’s Deputy Governor Calls for Lower Borrowing Costs to Prevent Market Distortions
In a recent interview with Larissa Garcia of Market News International (MNI), Banxico’s Deputy Governor Omar Mejia Castelazo emphasized the need to reduce borrowing costs to avoid potential distortions in the markets and the overall economy.
Mejia highlighted the importance of adjusting the level of restriction and expressed the central bank’s intention to gradually lower rates. He pointed out that the ongoing disinflationary process is reducing the costs of restrictive monetary policy for the economy.
Despite Banxico’s primary focus on price stability, Mejia voiced concerns about weak economic activity. He noted that the risk of sluggish growth is becoming a reality, citing three consecutive quarters of below-projection growth. Mejia’s dissenting vote in favor of lowering interest rates in June reflected his anticipation of this economic slowdown.
During the latest monetary policy decision, Banxico lowered the main reference rates by 25 basis points (bps) in a 3-2 split vote. Governor Rodriguez and Deputy Governors Galia Borja and Omar Mejia supported the rate cut, while Deputy Governors Irene Espinosa and Jonathan Heath dissented.
Analysts predict that Banxico will further reduce interest rates by at least 50 basis points (bps) for the remainder of 2024. When asked about the upcoming September meeting, Mejia mentioned that the central bank is evaluating various factors, including the stickiness of services inflation. He highlighted the persistent effects of pandemic-related shocks on certain components of services inflation.
In conclusion, Banxico’s decision to lower borrowing costs reflects its efforts to stimulate economic growth and address potential market distortions. This move could have significant implications for investors, businesses, and the overall economy. Stay informed about Banxico’s upcoming decisions to navigate the evolving financial landscape effectively.