Mexico | Banxico likely to stay cautious

Summary

Although we continue to expect the beginning of a rate cut cycle in 1Q24, Banxico’s cautiousness and hawkishness are significantly tilting the risks towards a further delay in the start of this cycle.

Key points

• Key points:
• Continued progress on inflation and a gradually rebalancing labor market in the US drove the Fed to skip a rate hike for a second consecutive meeting last week.
• We expect Mexico’s headline inflation to have eased to 4.25% YoY in October, the lowest level in 32 months, and core inflation to 5.5% YoY.
• Banxico will remain cautious until it becomes more confident that core inflation is headed toward target and the Fed clearly signals a definitive pause.
• The Board is set to remain backward-looking in the short term and to keep its policy rate steady for at least this upcoming meeting and the next one.
• We continue to expect Banxico to join other countries such as Chile and Brazil, which have already embarked in gradually easing their restrictive stance.

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