Published on Friday, March 22, 2024

Mexico | Rate cut cycle gets underway

This first rate cut marks the start of a long and gradual easing cycle that will most likely keep the monetary policy stance restrictive throughout this year and next even if Banxico cuts the policy rate without skipping any meeting in the remainder of the year and in 2025.

Key points

  • Key points:
  • Banxico cut the policy rate by 25 bps to 11.00% on a 4-to-1 vote; the disinflation process is expected to continue as inflation forecasts remained broadly unchanged.
  • The Mexico-US target rate spread narrowed to 550 bps, still giving Banxico a wide margin to keep normalizing the policy rate without risking a sharp peso depreciation.
  • Banxico continued to convey a cautious tone as “challenges and risks [...] prevail, which requires monetary policy to continue being managed prudently.”
  • Little forward guidance but the wording leaves the door open for consecutive rate cuts ahead as next decisions will depend on available information.
  • We continue to expect Banxico to cut the policy rate at each remaining meeting in 2024 to bring the policy rate to 9.25% by year-end, and to 7.25% by the end of 2025.

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