Mexico | Banxico pauses a likely very gradual rate-cut cycle

Summary

While members continued to state that “the disinflation process is expected to continue,” the stickiness of core services inflation drove Banxico to revise up its inflation forecasts after considering that “inflationary shocks are foreseen to take longer to dissipate.”

Key points

• Key points:
• Board members opted for caution and unanimously decided to leave the policy rate unchanged at 11% amid core services inflation stickiness and a patient Fed.
• The balance of risks remains biased to the upside in Banxico’s view, but recent developments have reinforced our view of more balanced risks in the months ahead.
• Banxico revised up its inflation forecasts, bringing its headline and core inflation paths closer to ours as “services inflation is foreseen to show more persistence.”
• The vote for a second rate cut will likely become 3-2 at the next meeting, once upcoming data convince some members that core inflation is set to cool further.
• We now think Banxico will bring down the policy rate to 9.75% by year-end (9.25% previously); we project an additional 200bp worth of rate cuts in 2025.

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