Mexico | Banxico will likely stay on the sidelines one more meeting

Banxico is set to hold the policy rate at 11.25% at this meeting amid core services inflation stickiness, but will likely continue to pave the way to cut it as soon as in the following meeting in March.

Key points

• Key points:
• Last week, the Fed kept the fed funds rate unchanged and hinted that the rate-cut cycle is not likely to start in March, which gives Banxico more time to stay cautious.
• Nevertheless, the reassessment of the short term path for the fed funds rate should not derail Banxico’s plan to “fine-tune” its policy stance given its much more restrictive level.
• The most recent data for headline inflation have been somewhat higher than expected driven by non-core prices, but core inflation has continued decelerating.
• Well-anchored inflation expectations and lower inflationary pressures from abroad suggest that there is ample room to begin to normalize the policy stance.
• We think that Banxico is likely to continue to pave the way to “fine-tune” the policy stance through a 25bp rate cut in March to avoid an unwarranted increase in the policy rate.

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