Public safety concerns and U.S. policies are currently troubling business leaders. The central bank has issued a warning that a slowdown might be on the horizon and is advising that more investments are needed, especially with decreasing demand and ongoing trade tensions.
Alejandrina Salcedo Cisneros, who leads the economic research team at Banco de México (Banxico), has highlighted the extensive impact that uncertainty is having on businesses throughout the country. “This scenario points towards a rather moderate expansion for regional economies,” she explained.
Salcedo elaborated, “The slowdown we’ve been monitoring for several quarters is now exacerbated by this uncertainty.” She suggested this might stem from declining demand, both domestically and internationally, particularly as the manufacturing output in the United States has decelerated.
Mexico’s central bank has reported a 0.6% economic contraction in the fourth quarter of 2024. While the country hasn’t entered a recession, a negative quarter like this one might signal a deeper economic downturn ahead.
Feedback from business executives in interviews with Banxico highlighted public safety deterioration and the U.S.’s trade policies as significant risks that could impact regional economies over the upcoming year.
Another point of concern is that public investment in infrastructure on both state and federal levels may not meet expectations.
In response to these challenges, Salcedo stressed the importance of fortifying domestic growth sources and creating favorable conditions for investment, particularly in infrastructure development.
Meanwhile, let’s dive into some common questions about Banxico. As Mexico’s central bank, Banxico aims to preserve the value of the Mexican Peso and manage monetary policy effectively. Its key goal is maintaining low and stable inflation around a target of 3%, with a tolerance range from 2% to 4%.
To steer its monetary policy, Banxico primarily utilizes interest rates. When inflation overshoots the target, raising rates can help cool the economy by making borrowing costlier, thereby boosting the Peso by attracting investors with higher yields. Conversely, lower rates generally weaken the Peso. The interest rate difference between Banxico and the U.S. Federal Reserve plays a crucial role here.
Banxico’s policy meetings occur eight times annually and are heavily influenced by the Fed’s decisions. Their meetings typically follow the Fed’s by about a week, allowing Banxico to respond or even preempt Fed actions. A case in point is their response during the Covid-19 pandemic, where they opted to raise rates even before the Fed to protect the Peso from depreciating significantly and to prevent destabilizing capital outflows.
All of this highlights the intricate balancing act Banxico must perform to navigate economic uncertainties and maintain financial stability.
