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MNI INTERVIEW: Banxico Unlikely To Cut Every Meeting - Soriano


The Bank of Mexico’s March rate cut does not necessarily signal the start of an easing cycle, former Banxico economist Oscar Galvez-Soriano told MNI, adding that officials could keep the policy rate unchanged or even raise it again if inflation worsens.

"If the board sees that inflation rises again, they are likely to react immediately. It's not that we're already seeing a cycle of rate cuts in every meeting," said Galvez-Soriano, now a professor at the University of Chicago, in an interview.

"I think it's very premature to decide to lower rates at this time. But on the other hand, the rate is very high," he added. (See MNI INTERVIEW: Banxico Declared Victory Too Soon - Alatorre)

There is no certainty that Mexican inflation is on a falling trend after ups and downs in recent years, he said, adding that the economy is performing strongly.

Banxico cut interest rates by 25 basis points to 11.00% in March, with Deputy Governor Irene Espinosa dissenting in favor of keeping borrowing costs on hold. The board offered no clear clues about its next steps in a statement that suggested that policymakers would be guided by data. (See MNI BANXICO WATCH: Easing Cycle Strictly Data Dependent)


Although a rate cut by the Federal Reserve could increase the rates differential between Mexico and the U.S., with implications for the peso, the former official said that Banxico’s policy path would not be tied too closely to the Fed’s.

"The Bank of Mexico is very independent in that sense. Normally, it will focus on what happens internally, and yes, there are some external factors to be considered," he said.

Galvez-Soriano said the reasons behind the peso’s recent appreciation are not clear, but that the exchange rate is likely to return to a structural level which he thinks is closer to 18 to the dollar than to its recent levels near 16.45, the strongest since 2015.

"I'm not sure if this is influenced just by the interest rates being so high," he said. "I don't think it's something structural.”

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