Mexico | Banxico is set to keep cutting rates amid cooling core services inflation

Summary

Banxico is likely set to cut the policy rate by 25 bps this week in a backdrop of easing core services inflation, which is starting to turn a corner amid a challenging context for economic activity.

Key points

• Key points:
• Last week, the Fed cut the policy rate by 25 bps and continued to signal that their plan points towards a further gradual reduction of policy restraint.
• Headline inflation broke a two-month downward streak and inched up to 4.8% YoY in October (from 4.6% in September) driven by unfavorable base effects.
• Core inflation eased for the 21st month in a row to 3.8% YoY with core services inflation falling below 5.0% (to 4.98%) for the first time since August 2022.
• Banxico will likely adjust the 4Q24 headline inflation forecast to the upside as November and December are months with seasonally-high inflation.
• Greater exchange-rate volatility following Trump’s victory should not derail Banxico’s plan to continue removing the excessively high degree of monetary restriction.

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