MNI WATCH: Banxico To Ease 50BP Again To 8.00%, Likely Split

The Central Bank of Mexico is widely expected to cut its overnight interbank interest rate by another 50 basis points to 8.00% on Thursday, in what would be an eighth consecutive reduction and the fourth of this size. Few analysts expect a 25bp move.

Progress in bringing inflation closer to the 3% target has been the main reason behind the Bank of Mexico’s decision to ease aggressively, despite a recent rebound that has raised bets on a split decision.

Former deputy general director at Mexico’s Ministry of Economy Daniel Zaga told MNI in an interview that Banxico is likely to reduce its interest rate by 50bps to 8.00%, with a chance of a dissenting vote in favor of a smaller cut. (See MNI INTERVIEW: Banxico Likely To Cut 50BP, Chance Of Dissent)

Former Banxico director and advisor Federico Rubli Kaiser also told MNI there is a chance of a split decision, and highlighted that the board should pause its rate-cutting cycle to reaffirm its independence and its commitment to reducing inflation, but it will probably continue cutting for now.  (See MNI INTERVIEW: Banxico Should Pause, But Probably Won't-Kaiser)

Kaiser said the next decision is likely to be split, with the board potentially opting for a 25-basis-point cut if the more hawkish majority prevails, or 50 basis points if dovish members win out, using weakness in economic activity as the main justification.

INFLATION REBOUND

Mexico’s annual INPC inflation rose to 4.42% in May from 3.93% in April, with core inflation also increasing to 4.06%. Both measures now exceed the central bank’s 3% target, which allows for a variation range of plus or minus 1 percentage point, setting the upper limit at 4%.

Former Banxico deputy governor Javier Guzman told MNI that Banxico intends to cut by 50bps, though this will depend on inflation developments, as its forward guidance does not represent a firm commitment. (See MNI EM INTERVIEW: Banxico To Cut 50BP If Inflation Allows -Guzman)

Last month, Banxico reduced its interest rate by 50 basis points to 8.50% and signaled at least one more cut in June, potentially of the same size.