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Mexico & Nafta - March 2018 (ISSN 1741-444X)

Economic Highlights

Interest rate increase: On 8 February Mexico’s central bank (Banxico) increased its benchmark interest rate by 25 basis points to 7.5%, after the statistics showed that inflation rose towards the end of 2017 due to higher food and gasoline prices and a weaker peso. Banxico’s monetary policy committee made the unanimous decision to increase the benchmark interest rate given the uncertain domestic economic outlook, which is affected by concerns over the success of the renegotiations of the North American Free Trade Agreement (Nafta) and Mexico’s 1 July general election. On 28 February Banxico ratified its 2%-3% GDP growth forecast for this year. In its report on the fourth quarter of 2017, Banxico notes that the forecast is based on the expectations that external demand for Mexican goods will remain strong but tempered by the uncertainty that still surrounds the future of Nafta, which could “negatively affect investment in the country”. As for inflation, which ended 2017 at a record high of 6.77%, Banxico forecasts that it will come down towards its 3% target throughout the year. However, Banxico is clear that this will only happen if the peso/US dollar exchange rate remains stable and does not exhibit high levels of volatility.

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