MNI Banxico Preview – Sep 2024: Further Easing Expected
Executive Summary
- Banxico is expected to cut the overnight interbank interest rate by 25bp to 10.50%, supported by further progress on the disinflation front and amid ongoing concerns surrounding growth.
- Domestic uncertainty related to Morena’s constitutional reform initiative has placed pressure on MXN, which could become a concern should there be a further deterioration.
- However, the Fed’s bolder move to initiate its easing cycle should provide the Banxico committee with the required flexibility to continue with an easing strategy.
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MNI (LONDON)
Earlier this month, Deputy Governor Jonathan Heath said that persistent services inflation remains a challenge for policymakers, noting that although core inflation has slowed consistently, that trend is beginning to wane because of the increase in service costs. Nonetheless, he also said that overall inflation has remained sticky largely because of the spike in food prices of just six products and that he expects these costs to cool, even if the process will be uneven. Against this backdrop, it was notable that he said the time when the central bank can start lowering rates more systematically is just around the corner, suggesting that he may consider voting in favour of a 25bp cut this month (after dissenting with Deputy Governor Espinosa in August).
Meanwhile, Deputy Governor Omar Mejia told MNI this month that the central bank needs to reduce the level of monetary policy restriction given recent disinflationary progress, adding that excessively high interest rates for an extended period may cause distortions in markets and the economy. (See MNI Policy Team Insights below.) He also said that while services inflation is proving more resilient, this is a worldwide phenomenon not necessarily correlated to cyclical conditions, and that he is focused on how weakness in economic activity filters through to price pressures.