MNI Banxico Preview - Nov'24: 25BP Cut Seen, Board on FX Watch
Executive Summary
- Most analysts expect Banxico to deliver another 25bp cut in November, taking the overnight rate to 10.25%.
- With the balance of risks to growth remaining biased to the downside and the most recent vote split shifting in a dovish direction, the continuation of a gradual easing cycle appears most likely at this juncture.
- However, a hawkish surprise cannot be completely ruled out amid stubborn headline inflation and significant MXN volatility in recent weeks.
Click to view the full preview: MNI Banxico Preview - Nov 2024.pdf
Speaking after the last MPC meeting in September, when the central bank delivered a second successive 25bp rate cut, Banxico Governor Victoria Rodriguez said that the board may consider larger interest rate cuts ahead as inflation declines. She said that the inflation outlook had improved very significantly, and the economy is in a solid position. Meanwhile, deputy governor Omar Mejia also noted that the output gap could be negative by the end of the year, which would affect prices and would help inflation to continue slowing.
Since then, inflation data have been mixed. After declining in September, headline inflation rebounded to 4.76% y/y in October, driven by higher food prices. At the same time, however, core inflation has continued to decline, with the annual rate there easing to 3.80% y/y, from 4.00% prior to the previous MPC meeting. There was also a decline in services inflation, which dipped to 4.92% y/y in the second half of October, the lowest level in over two years. Meanwhile, there are few signs of pass-through from the weaker exchange rate, with core goods inflation still contained.