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Mexico Monetary Policy November 2023

Mexico: Central Bank keeps rates stable in November

At its meeting on 9 November, the Governing Board of the Bank of Mexico (Banxico) left the overnight interbank interest rate target at 11.25%, following similar holds in August and September.

The decision not to hike further was likely driven by the declines in headline and core inflation registered in recent months. That said, with both indicators still above the upper bound of the Central Bank’s 2.0–4.0% target range, and economic activity robust, it was premature to begin cutting rates.

Banxico stated that the policy rate “must be maintained at its current level for some time” in order to tame inflation. This appears slightly more dovish than the previous meeting’s language about rates remaining unchanged “for an extended period”. Most panelists now expect the Central Bank to keep rates unchanged at its final meeting of the year on 14 December, with all seeing rate cuts next year. However, there is a 425 basis-point discrepancy among panelists over the end-2024 rate.

On the outlook, Goldman Sachs’ Alberto Ramos said:

“All in, the post meeting policy statement become clearly more dovish by: (1) recognizing progress on the disinflation front, (2) downgrading the inflation backdrop to ‘still challenging’ from ‘very complex’, (3) striking out the reference that ‘previous shocks are still impacting inflation, especially services’, and (4) shortening the horizon for rates on hold to ‘some time’ from ‘prolonged period of time’. We anticipate the first rate cut (-25bp) in March 2024, and expect the policy rate to reach 9.50% by end 2024.”

In contrast, Itaú Unibanco analysts were slightly more hawkish:

“We kept our call of the central bank beginning their monetary easing cycle with a 25-bp rate cut in May’s 2024 policy decision.  Despite a more dovish tone in the statement, we think that still persistent services inflation, resilient activity, which will likely continue next year amid an expansionary fiscal stance, and tight external conditions will lead the central bank to [leave] its policy rate [unchanged] until the beginning of 2Q24.”

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