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Mexico Monetary Policy February 2024

Mexico: Central Bank keeps rates stable in February

At its meeting on 8 February, the Governing Board of the Bank of Mexico (Banxico) left the overnight interbank interest rate target at 11.25%, where it has been since March 2023. This came after 725 basis points of hikes from early 2021 to March 2023.

Cutting rates was premature given that headline and core inflation remain above the upper bound of the Central Bank’s 2.0–4.0% target range, and that both the market’s and the Bank’s own short-term inflation forecasts were revised upwards. In contrast, hiking further was not warranted given that interest rates are already at historically high levels and that the Bank still sees inflation returning to the target range in H2 this year.

Banxico’s forward guidance became more dovish, with the Bank floating the possibility of rate cuts at upcoming meetings. Our Consensus is for over 200 basis points of rate cuts this year, though there is a 250 basis-point discrepancy among panelists over the end-2024 rate.

On the outlook, Itaú Unibanco analysts said:

“In our view, the statement is consistent with our call of the easing cycle beginning with a 25-bp cut in March, assuming that core inflation continues behaving as expected by the central bank.  While further pressures in non-core inflation are a risk to our call, board members seem to be downplaying it. We expect a gradual easing cycle given lingering risk to inflation, with our end of year policy rate forecast at 9.50%.”

Goldman Sachs’ Alberto Ramos was more dovish:

“The door remains open for the first rate cut to take place in March or May. […] At this juncture we continue to expect the first rate cut at March 2024 (-25bp) and we expect the policy rate to reach 9.00% by end-2024.”

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