Mexico | We don't expect any further shift in tone with the stage set for rate cuts soon

Summary

Banxico is set to hold the policy rate at 11.25% and stick with its message that, with the disinflation process on track, it will likely cut the nominal policy rate in early 2024 to avoid an unwarranted further increase in the real ex-ante rate.

Key points

• Key points:
• A significant shift of tone in last month’s statement suggested that discussions on avoiding a more restrictive stance in the coming months had started.
• The meeting minutes released a couple of weeks ago confirmed this, with one member arguing that “there is room to discuss [rate] cuts” amid recent inflation developments.
• Banxico is thus set to stick with its message that it will likely cut the nominal policy rate in early 2024 to avoid an unwarranted further increase in the real ex-ante rate.
• Although we think that Banxico should not skip cutting rates at any meeting next year, its recent hints suggest that consecutive rate cuts are unlikely at the start of the gradual easing cycle.
• We now anticipate an even more gradual easing cycle due to Banxico's cautiousness: we now expect Banxico to bring down the policy rate to 9.0% by year-end 2024.

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