(Bloomberg) -- Two of Latin America’s main inflation-targeting central banks meeting Thursday are forecast to take their cues from their most recent consumer price reports, with Mexico all but certainly opting for a pause and Peru set to deliver a second straight interest rate cut.

In Mexico, persistent above-target inflation will likely take a second straight cut off the table and convince policymakers to hold at 11%, according to 28 of 30 analysts surveyed by Bloomberg. In Peru, last month’s decline in consumer prices likely greenlights another quarter-point cut to 5.75%, according to a majority of analysts.

Both economies are facing headwinds in the coming year that could in turn complement monetary policy to damp demand and consumer prices. First-quarter data in Mexico showed a drop-off in momentum, with a slump in manufacturing. Peru’s economy was among the worst performers in emerging markets last year and S&P Global Ratings downgraded it to BBB- in April. 

Additionally, a proliferation of threats to the global outlook may weigh on the deliberations by central banks — including Mexico’s and Peru’s — across the region going forward. Both bank boards will also keep an eye on the US Federal Reserve, which is currently hemmed in by stubborn inflation and likely months away from starting to ease monetary policy.

Mexico’s Cautious Hold

  • Current Rate: 11%
  • Time of decision: 3 p.m. ET

Mexico’s Banco de Mexico, known as Banxico, is forecast to hold borrowing costs unchanged with unfavorable data expected out of April’s consumer prices report published Thursday morning. Economists see annual inflation moving back over 4.6% from 4.42%. 

Though overall inflation has generally shown improvement, the services component and core readings — which exclude volatile items such as food and fuel — have been persistent concerns for the bank.

What Bloomberg Economics Says

“We expect Mexico’s central bank to hold the benchmark rate at 11% following a 25-bp cut in March. It’s likely to be a split decision, with some policymakers voting for another 25-bp reduction amid worries about keeping rates too high for too long. We think most will prefer to wait for more data and fewer risks to the inflation outlook. Forward guidance is set to keep the door open for cuts, with the timing depending on new information.”

—Felipe Hernandez, Latin America economist at Bloomberg Economics

Governor Victoria Rodriguez said that the bank would make step-by-step decisions. One member of the board, Jonathan Heath, said that the bank’s decision to hold Thursday could even be unanimous. Another member, Irene Espinosa, had said that she thought a quarter-point cut in the previous decision, the first reduction in the rate since 2021, had been premature.

The economy grew just 0.2% in the first quarter of this year compared to the previous three-month period, and the economy gives sign of losing momentum after better-than-expected growth rates over most of 2023.

Peru to Cut

  • Current Rate: 6%
  • Time of decision: 7 p.m. ET

Peru is widely expected to cut its key rate by a quarter-point Thursday after posting monthly deflation in April to pull the annual inflation rate down to within the central bank’s target range for the first time since May 2021. 

Annual inflation slowed to 2.42% in April, significantly below expectations. The central bank targets consumer price rises of 2% per year, plus or minus one percentage point.  

While 10 of 13 analysts surveyed by Bloomberg expect the bank to trim borrowing costs to 5.75%, policymakers have surprised economists at their last two meetings. 

What Bloomberg Economics Says

“In Peru the central bank has more flexibility because inflation and inflation expectations are within the target range, activity is below potential and the central bank has a strong control of the exchange rate market. In Mexico inflation and inflation expectations remain above target, activity is above potential and the exchange rate market is very liquid with practically no central bank intervention. Monetary conditions in both countries are still tight, more so in Mexico than in Peru, so both are still being cautious.”

—Felipe Hernandez, Latin America economist at Bloomberg Economics

The economy is recovering from a recession in 2023 and grew above expectations in February, prompting the government to raise its 2024 GDP forecast to 3.1%. 

Still, Finance Minister Jose Arista has said the government will be unable to meet its deficit target for the year of 2% of GDP and will instead seek to pass a law to allow a deficit of up to 2.5%. 

--With assistance from Rafael Gayol.

©2024 Bloomberg L.P.