Published on Thursday, September 28, 2023 | Updated on Thursday, September 28, 2023

Mexico | The window for the rate cut cycle to start in 4Q23 seems to have closed

Banxico will likely remain backward-looking in the short term and keep its policy rate steady for at least this month’s meeting and the following two in 4Q23.

Key points

  • Key points:
  • It will not feel compelled to signal that a rate-cut cycle is in store anytime soon, even amid high real interest rates and a gradual disinflation process.
  • At least some members are likely to discuss the possible implications of the most recent Economic Package for 2024, which could complicate their fight against inflation.
  • A projected public deficit of 4.9% of GDP for next year (an all-time high since 1990) will likely be considered as an additional inflationary risk.
  • We still think that Banxico will eventually try to avoid further policy tightening amid falling inflation, even if the Fed hikes rates one more time or holds them steady.
  • It is likely to join other countries such as Chile and Brazil, which are already easing their restrictive stance, probably at the start of 2024.

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