(Bloomberg) -- Mexico will likely lower borrowing costs for a second straight meeting as inflation readings are easing faster than expected and the economy heads for a third year of slower growth.
The majority of economists surveyed by Bloomberg expect Banco de Mexico, known as Banxico, to deliver a second straight quarter-point interest rate cut to 10.5%. Five of 30 economists forecast a half-point reduction, while one sees a pause at 10.75%.
At Banxico’s last meeting on Aug. 8, three board members led by Governor Victoria Rodriguez voted for a 25 basis-point cut while two voted against easing, arguing that the move was premature. In their post-decision statement, policymakers said that “the inflationary environment may allow for discussing reference rate adjustments.”
“Banxico will pursue gradual easing, at least in the short term, maybe next year more aggressively at some point, being able even to accelerate the pace of rate cuts,” Cassiana Fernandez, the head of Latin America economic research at JPMorgan & Chase Co., said in an interview in London. “We expect them to end the easing cycle at 8% by mid-next year.”
What Bloomberg Economics Says
“Forward guidance is likely to keep the door open for additional cuts while emphasizing that monetary conditions remain tight and that any move will depend on new data. It is likely to be another split decision. Data since the August meeting show inflation decelerating in line with Banxico forecasts, weaker growth and greater economic slack. The Federal Reserve’s outsize cut and forward guidance provides additional flexibility.”
-Felipe Hernandez, Latin America economist
Room to Cut
- Current rate: 10.75%
- Time of decision: Thursday, 3 p.m. ET
Since a mid-year jump in consumer prices, Mexico’s annual inflation rate has declined from a July peak of 5.61% to 4.66%, still above the central bank’s target of 3% plus or minus a percentage point, but bolstering confidence that Banxico’s disinflation forecasts are on track. Moreover, closely-watched core readings, which exclude volatile items such as food and fuel, are at or within the bank’s 2%-to-4% range
Another development that Banxico’s board is sure to consider, the US Federal Reserve last week lowered its key rate for the first time in four years with a half-point reduction and left the door open to additional cuts. Banxico usually takes the actions of its US counterpart into account when setting policy.
The more favorable inflation data may also be enough to persuade one of the August decision’s two dissenters to plump for easing, Gabriel Casillas, managing director of Barclays Capital Inc., said.
“We believe that the arguments in favor of lowering the rate provide an opportunity for Governor Victoria Rodríguez to achieve a unanimous reduction of 25 basis points, or at least with a 4-1 vote,” he said.
Looking forward, the bank may continue with a policy of easing gradually, as it has pledged to do until now. Board member Irene Espinosa is ending her term on the bank this year, and President-elect Claudia Sheinbaum — who takes over Oct. 1 — will be able to nominate her replacement.
According to Bloomberg Economics, activity through the first seven months of 2024 is down 0.5% from the year prior. Beverages, chemicals, electronics and oil refining are the only sectors that are growing.
Economists in the most recent Citi survey published on Sept. 20 expect that inflation this year will end at 4.55% and in 2025 will slow to 3.8%. Their prediction for 2024 economic growth matches the central bank’s 1.5% call.
--With assistance from Jorgelina do Rosario and Rafael Gayol.
©2024 Bloomberg L.P.
