MNI BANXICO WATCH: 25BP Cut Expected, Eyes on Forward Guidance
The Central Bank of Mexico is expected to make a second consecutive 25-basis-point cut at its meeting Thursday, taking its overnight interbank interest to 7.50%, the lowest since May 2022, after four 50-basis-point moves in the first half of the year.
Market participants will be watching the forward guidance for signs of whether Banxico can keep cutting without pauses in the second half as the rate nears its neutral level.
The board is still considering further interest rate cuts, Governor Victoria Rodriguez Ceja said during a virtual presentation of the central bank’s second quarter economic update last month, adding that the decision to cut by a quarter point in August was underpinned by increasing slack in a slowing economy.
Banxico slowed the pace of its easing last month, but signaling more cuts ahead without specifying their size. Deputy Governor Jonathan Heath dissented in favor of holding.
INFLATION DATA
INPC annual inflation was 3.57% in August, up from 3.51% in July. Core inflation was 4.23%, stable from a month earlier. Headline inflation remains within the 3% target range, which allows for a 1 percentage point variation in each direction.
Recent progress in bringing inflation closer to the 3% target was the main reason behind the Central Bank of Mexico’s decision to cut rates aggressively in the first half of the year.
Banxico’s former director of economic studies Alejandro Werner told MNI in an interview that the board is likely to stick with 25-basis-point rate cuts for now, though it could have more room to ease if the Federal Reserve signals a clear dovish stance over the coming months, potentially strengthening the peso. (See MNI INTERVIEW: Banxico Can Cut More If Fed Turns Dovish-Werner)
Former Banxico deputy manager of research strategy Enrique Covarrubias told MNI that the central bank might cut 25bp this week before pausing its easing cycle until next year. (See MNI INTERVIEW: Banxico To Cut Once More And Hold - Covarrubias)
