Publications

With a 25bp cut widely expected, the key question is whether the Fed will frame it as a fine-tuning of its current moderately restrictive stance or as a renewed easing cycle toward a more neutral stance.

The focus of Thursday’s ECB monetary policy meeting was not so much on the interest rate decision (already priced in by analysts and markets, who expected the deposit rate to be unchanged at 2%), as on the hints that Christine Lagarde could give regarding what the central bank will do next.

Monthly inflation in August was 0.19%, in line with analysts' expectations and BBVA Research. This brings annual inflation to 5.1%, an increase of 20 basis points compared to July, and marks two consecutive months of inflation increases.

Consumer prices rose by 2.04% m/m in August, above our expectation and consensus (1.75%), resulting in an annual inflation of 32.95%. We maintain our inflation forecast of 30% by end 2025 and assess that the CBRT might reduce the pace of cuts going ahead in order to contain the risk of sticking to 1.5-2% monthly CPI trend.

Three developments shaped the Treasury market over the past month: a weak jobs report, a dovish tone from Powell at Jackson Hole, and renewed political pressure stemming from Trump’s push to replace Governor Lisa Cook from the Fed’s Board.

Inflation averaged 1.7% m/m in the last quarter, the lowest level in eight years (22% annualized). The monthly figure is in line with expectations (BBVA: 1.8%, REM-BCRA: 1.8%), so we maintain our projection of 28% y/y for 2025.

The absence of new language suggesting increased caution—despite recent core inflation stickiness—indicates that most members remain open to continuing the easing cycle, albeit at the current more gradual pace of 25 bps per meeting.

Lingering challenges for the growth outlook should maintain Banxico’s confidence that monetary policy can (and should) continue to ease. We think Banxico will remain confident in further services disinflation ahead and will proceed with a 25bp rate cut this week.