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HSBC Expect First 25bp Banxico Rate Cut in March

MEXICO
  • After today’s mixed mid-month inflation data, HSBC maintain their call for the first 25bp rate cut in March. Despite the higher-than-expected headline print, they believe that the continued decline in core inflation will prompt Banxico to adjust its guidance in February, opening the door to a first move at the following meeting in March. Beyond that, they expect the policy rate to be cut to 9.5% by year end.
  • Although headline inflation for the first half of January surpassed consensus expectations by a wide margin (+0.49% m/m vs. +0.38% exp.), HSBC note that the surprise was explained fully by fruit and vegetable prices, within the non-core category. By contrast, core inflation printed in line with expectations, helped by continued disinflation in tradable goods.
  • Overall, HSBC expect core inflation to continue to decline ahead, noting that this was the first time since H1 October 2022 in which the annual core inflation rate has been below the headline rate. Looking ahead, HSBC expect headline inflation end the year at 3.9%, putting it within the 2-4% target range.
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