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Banxico reduces the interest rate by 25 points

27 March 2024

On March 21, 2024, the Governing Board of the Bank of Mexico decided to lower the target for the daily Interbank Interest Rate (the “Interest Rate”) by 25 points to a level of 11.00%.

This decrease represents the first cut in the interest rate since February 2021, when the rate was set at a maximum 11.25%, and was maintained from that date until March 22, 2024, the date from which the aforementioned decrease will enter into effect.

In Mexico, interest rates on government securities showed limited movements. The Mexican peso appreciated and has reduced its level of volatility, so a mor dynamic economy is expected in the first quarter of 2024. On the other hand, the labor market continued to show strength thanks to foreign companies that continue to invest in the country as a result of nearshoring.

RELEVANT ASPECTS

▪ The annual general inflation, which had increased towards the end of 2023 and in January 2024, decreased to 4.40% in February.

▪ The disinflationary process is expected to continue, given the local and international monetary policy stance, as well as the reduction of the effects caused by the pandemic and the war in Ukraine.

▪ Banxico began with Interest Rate increases starting in June 2021, when the Interest Rate was at 4.25%, followed by 15 consecutive increases until March 2023, when it remained at 11.25% until March 2024.

▪ The decrease in the Interest Rate came the day after the U.S. Federal Reserve kept its rate at a range of 5.25% and 5.50% for the fifth consecutive time.

RISK ASSESSMENT FOR DECISION MAKING

The Governing Board acknowledged the disinflationary process since the last adjustment of the reference rate (March 2023); however, it considered that there are still risks, so the country’s monetary policy should continue to be managed prudently.

As a result, the Governing Board decided by majority vote to reduce the target for the Interest Rate by 25 points to a level of 11% (previously 11.25%), maintaining the restrictive monetary policy stance and in order to achieve the 3% inflation target by the end of this year.

ENTRY INTO FORCE

According to its press release, Banco de Mexico announced that the decision to lower the Interest Rate will be effective as of March 22, 2024.

In light of the above, in Bravo Abogados we would be happy to answer any question you may have regarding this legal alert.

52-81-24748538 
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Blvd. Antonio L. Rodríguez 3000, Colonia Santa María, 5to piso, Interior 501 Torre Albia, C.P. 64650 Mty, N.L., México T.

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