Mexico | Broad-based disinflation gives Banxico ample room to keep cutting rates

Summary

Although we think there is a 40% chance of a 50bp cut, the Board will most likely end sticking to another 25bp cut. A 50bp rate cut would be a sound policy decision considering the excessively restrictive real ex-ante rate and the progress of disinflation.

Key points

• Key points:
• The Fed likely remains confident to keep cutting rates this week as chances are that the recent inflation bump is transitory like the short-lived episode from 1Q.
• In Mexico, headline inflation eased to 4.55% in November (from 4.8% in October) supported by a slight but broad-based slowdown in all main sub-indexes.
• Core inflation eased for the 22nd month in a row to 3.6% YoY (from 3.8% in October), with core services inflation falling for the fourth consecutive month to 4.90%.
• Banxico will likely adjust 0.1 or 0.2 pp down its 4Q24 headline inflation forecast to 4.6 or 4.5%, while leaving the rest of the path unchanged.
• In our view, Banxico should cut rates by 50 bps this week before the window to speed up the rate-cutting cycle pace closes next year.

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