MNI Banxico Preview - Aug 2024: Cautious Board Leaning Towards Rate Cut

Executive Summary

• Analysts appear evenly divided over the outcome of this week’s Banxico decision.
• Prior forward guidance suggested greater willingness to consider a rate cut in August, and the recent softening of US data and dovish repricing for the Fed should bolster the case to restart policy easing in Mexico.
• However, a strong rebound in headline inflation and recent pressure on MXN amidst the sell-off in risk assets promotes the need for caution and enhances the likelihood of a split vote and the possibility of a rate hold at this juncture.

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MNI Banxico Preview - Aug 2024.pdf

Narrow Majority Leaning Towards Renewed Policy Easing

At the June monetary policy meeting, Banxico struck a more dovish tone, with the forward guidance suggesting a greater willingness among policymakers to consider a rate cut in August. The more dovish tone of the statement was reinforced by the minutes to that meeting, which highlighted that a divergence amongst the board into two groups had been clearly established. The more dovish members, which likely includes Governor Rodríguez and Deputy Governors Borja and Mejía, appear to give a larger weight to the possible impact of an economic deceleration on prices. On the other hand, hawkish members Espinosa and Heath argue that upside risks for inflation persist, which in their view means that a more prudent and cautious approach should be maintained.