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

Summary

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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