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Mexico Monetary Policy June 2024

Mexico: Central Bank maintains rates in June

At its meeting on 27 June, the Central Bank decided to maintain the target for the overnight interbank interest rate at 11.00%, matching the decision at its prior meeting in May.

The decision to keep interest rates unchanged was primarily influenced by domestic factors such as rising inflation since April, and the depreciation of the Mexican peso in the aftermath of the June general elections; the depreciation led the Bank to revise up its inflation forecasts for the coming quarters. That said, rate hikes were not warranted given that inflation is still expected to converge to the target in the fourth quarter of 2025.

The Central Bank provided no explicit forward guidance on future interest rate movements. The Consensus among our panelists is for rate cuts to ensue from Q3 onwards, though there is a significant gap between minimum and maximum forecasts by end-2024.

Giving their take on the outlook, Scotiabank analysts said:

“In our view, the dovish tone of the statement opens the door to an additional cut at the August meeting. However, we believe that the outlook faces a high degree of uncertainty, due to the behaviour of inflation, especially in its non-core items, as well as the political events that could foster volatility and risk aversion in financial markets. Thus, we maintain our expectation of a cut at the September meeting, and a rate of 10.50% in December of this year, with a data-dependent focus.”

Goldman Sachs analysts were more dovish:

“At this juncture we forecast a 25bp rate cut at the Aug meeting, unless the data set is clearly unfriendly, and the policy rate to reach 10.0% by end-2024, with risks skewed to the upside.”

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