Mexico | Banxico is likely set to keep the policy rate steady

The favorable core inflation trend gives Banxico room to continue lowering the policy rate, which will remain tight during 2024-25 despite a gradual rate cut cycle, but we now expect Banxico to pause the rate cut cycle this week and take rates down to 9.75% by year end.

Key points

• Key points:
• A further delay of the Fed’s rate cut cycle amid the lack of further progress on inflation in 1Q24 adds to the view that Banxico will proceed cautiously.
• Board members seem to agree on the view that it is too soon to consider that the March’s rate cut marked the beginning of a non-stop monetary policy easing cycle.
• In the intermeeting period, headline inflation hit a bump in the road but core inflation continued to ease (from 4.7% at the time of the March meeting to 4.4% now).
• Banxico’s board will likely remain concerned about the continued stickiness in core services inflation, which likely eased to 5.2% YoY in April from 5.4% in March.
• The monetary policy stance is set to stay very tight in the near term in absolute terms, but also in relative ones when compared to other emerging central banks.

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