MNI WATCH: Banxico To Cut 25BP Despite Peso Volatility
MNI (BRASILIA) - The Central Bank of Mexico is expected to reduce its overnight interbank interest rate by 25 basis points to 10.25% Thursday, in its third consecutive rate cut, though a minority of analysts are betting on a hold due to the depreciation of the peso following Donald Trump’s election victory last week.
The peso’s weakness, losing about 2% since last Wednesday, also raises doubts about the unanimity of the upcoming monetary policy decision. Investors are concerned about U.S. immigration policies which may affect Mexico and potential tariffs under Trump.
Banxico’s decision in September, when it lowered its interest rate by 25 basis points to 10.50%, saw only one dissent, with Deputy Governor Jonathan Heath in favor of maintaining borrowing costs at 10.75%.
Recent dissenting votes within the Banxico board have been driven by disagreements over inflation risks, though there was still consensus at September’s meeting regarding the central bank’s own central projections, despite these being more optimistic than those of the market, MNI reported last month. (See MNI POLICY: Even Banxico Hawks Accept Inflation Projections)
CORE INFLATION
Annual inflation increased to 4.76% in September from 4.58% in August, but core inflation was 3.80%, below consensus and continuing its downward trajectory from 3.91% one month prior.
Banxico economist David Tapia told MNI in an interview that the board looks set to maintain a gradual and continuous monetary easing cycle through next year, likely delivering another 25bo rate cut in November. Banxico will closely monitor inflation and economic activity, he added. (See MNI INTERVIEW: Banxico To Continue Easing Through 2025-Tapia).
The impact of the U.S. elections on their region was the main topic discussed by Latin American policymakers at the IMF autumn meetings in Washington last month. (See MNI: Latam Policymakers Concerned About US Elections at IMF)