Banxico May Cut for Third Meeting on Core Inflation: Day Guide

Mexico will likely deliver a third straight interest rate cut Thursday as core inflation is back to the target range and growth in Latin America’s second-biggest economy is slowing.

Author of the article:

Bloomberg News

Maya Averbuch

Published Nov 14, 2024  •  2 minute read

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(Bloomberg) — Mexico will likely deliver a third straight interest rate cut Thursday as core inflation is back to the target range and growth in Latin America’s second-biggest economy is slowing.

Banco de Mexico, known as Banxico, is expected to cut its key rate by quarter-point to 10.25%, as forecast by 25 of 27 economists surveyed by Bloomberg. Two analysts expected policymakers to keep borrowing costs unchanged at 10.5%.

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The decline in the core print, which is closely watched by Banxico and has decelerated for 21 straight months, will likely prove to be a main driver behind the decision. The slowdown in the metric, which strips out volatile items such as energy and food, points to an improving inflation outlook even while headline readings have proven harder to tame.

“Core inflation keeps decelerating,” said Rodolfo Navarrete, director of analysis at Vector Casa de Bolsa. “Fundamentally, what’s happening hasn’t changed” from the bank’s last meeting in September when policymakers delivered a second straight quarter-point cut to 10.5%.

At 3.8%, the annual core reading is back to its year-end 2020 level and well below its November 2022 post-pandemic peak of 8.51%. The bank targets inflation at 3%, plus or minus a percentage point. 

At the same time, headline inflation has charted a bumpy course in 2024 and currently sits at 4.76%, though Banxico sees it ending 2024 at 4.3% and back and to target by year-end 2025.

What Bloomberg Economics Says

“We see Mexico’s central bank cutting its benchmark rate by 25 basis points to 10.25% at its Nov. 14 meeting. Forward guidance is likely to keep the door open for additional reductions, while emphasizing that monetary conditions remain tight and stressing data-dependence. It’s likely to be another split decision. Decelerating core inflation, tight monetary conditions and slowing activity and domestic demand support additional accommodation. Accumulated peso depreciation since April and higher volatility after the US election are risks.” 

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-Felipe Hernandez, Latin America economist

See the full note here.

Banxico has also dramatically marked down its output forecasts for this year and next, slashing its 2024 GDP call to 1.5% from 2.4% and to 1.2% in 2025 from 1.5%. Economists surveyed by Bloomberg have trimmed their fourth-quarter growth estimates, which if borne out, would also contribute to easing price pressures.

The last decision was split, with board member Jonathan Heath arguing that the move was premature despite the positive data, but now economists say the continuation of the same trends seen before — the volatility around the election of Donald Trump in the US election notwithstanding — should be enough for the bank to continue with its modest easing.

All 36 analysts in the most recent Citi survey expect the central bank will decide on a quarter-point cut to 10.25% at Thursday’s meeting.

—With assistance from Rafael Gayol.

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