Mexico | Banxico hints it will likely cut rates in March

A key change in the forward guidance signals that Banxico is getting ready to start a rate cut cycle as “in the next monetary policy meetings, it will assess, depending on available information, the possibility of adjusting the reference rate.”

Key points

• Key points:
• Banxico kept the policy rate unchanged at 11.25% but continued to pave the way to likely start an easing cycle in the next meeting.
• It revised upwards its short-term headline inflation expected path on “supply shocks on some specific items of the non-core component.”
• But also fine-tuned its 1Q24 core inflation forecasts to the downside and repeated that it expects the disinflation process to continue.
• We think that Banxico will cut the policy rate by 25 bps to 11.0% in the next meeting in March to avoid an unwarranted increase in the real ex-ante policy rate.
• We also think that it should not skip rate cuts at any meetings, but its cautiousness suggest that consecutive rate cuts are unlikely at the start of the easing cycle.

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