MNI Banxico Review - September 2023: Guidance Retained

Executive Summary:

• Banxico’s governing board decided to keep the overnight rate unchanged at 11.25%, in a unanimous decision. The outcome was in line with prior guidance from the committee and consensus expectations.
• Furthermore, the statement maintained the current guidance that “in order to achieve an orderly and sustained convergence of headline inflation to the 3% target, it considers that it will be necessary to maintain the reference rate at its current level for an extended period."
• There were upward adjustments to the core inflation forecasts across 2024, pushing the expected convergence with the inflation target further back, now into Q2 2025 rather than Q4 2024 previously.

MNIBanxRevSept23.pdf

As expected, Banxico kept the headline overnight rate unchanged, and stood firm with their guidance that current conditions are necessary for a sustained convergence of inflation with the bank’s policy target. That said, the bank did tweak their CPI forecasts at this meeting, revising higher their core inflation assumptions for next year and delaying the point at which they achieve their price mandate by two quarters.

The statement flagged that the upside risks to inflation include persistence of core inflation, MXN depreciation, great cost pressures and energy prices, while downside risks to the outlook include the global economy, muted pass-through channels and any domestic currency strength. Overall, they concluded that inflation risks remain biased to the upside.