MNI Mexico Central Bank Review - May 2024: Easing Cycle Paused, With Focus On Inflation Risks

Executive Summary

• Banxico’s governing board decided to keep the overnight rate unchanged at 11.00%, in line with expectations. The decision was unanimous.
• Once again, the committee did not commit to future rate adjustments, as it remains in a data-dependent mode, which will continue to provide it with flexibility ahead.
• Some analysts still expect the next rate cut to come in June, depending on the incoming inflation data, but risks are skewed to a longer pause in the easing cycle.

See the full MNI Review, with a summary of sell-side analyst views, here:

MNI Banxico Review - May 2024.pdf

In the accompanying statement, the board noted that “inflation shocks are foreseen to take longer to dissipate”, with services inflation, in particular, expected to be more persistent than previously anticipated. As a result, inflation forecasts for the next six quarters have been revised upwards, with the headline rate now expected to converge to the target in the fourth quarter of 2025 (vs. Q225 previously), as shown below in the central bank’s updated table of forecasts. Risks to inflation remain biased to the upside.

Meanwhile, inflation expectations for end-2024 have been adjusted upwards, while those for the longer-term remain relatively stable at levels above the target.

In terms of the guidance, policymakers are focused on inflation, with the board stating that “it will assess the inflationary environment in order to discuss reference rate adjustments. It will also consider the incidence of both the restrictive policy stance that has been maintained and that prevailing in the future on inflation throughout the horizon in which monetary policy operates.”