MNI WATCH: Banxico To Cut Rates By 25BP As Inflation Eases
MNI (BRASILIA) - The Central Bank of Mexico is generally expected to reduce its overnight interbank interest rate by 25 basis points to 10.50% on Thursday, in its second consecutive rate cut, with a minority of analysts betting that weaker economic activity will prompt a deeper half-point reduction.
Last month, Banxico lowered its interest rate by 25 basis points to 10.75% in a split decision and arguments for further cuts center on the continued decline in core inflation. The Board emphasized that risks to economic growth remain tilted to the downside, given the restrictive monetary policy stance.
Governor Victoria Rodriguez and Deputy Governors Galia Borja and Omar Mejia supported the cut, while Deputy Governors Irene Espinosa and Jonathan Heath voted to maintain the rate at 11%.
Mejia told MNI in an interview earlier this month that the board should reduce the level of monetary policy restriction given disinflationary progress, adding that excessively high interest rates for an extended period may cause distortions in markets and the economy. (See MNI INTERVIEW: Lower Rates With Disinflation- Banxico's Mejia)
WEAKER ACTIVITY
Annual inflation fell to 4.99% in August from 5.57% in July, the first deceleration after five months of an upward trend. Core inflation was 4.00%, in line with consensus and continuing its downward trajectory.
Meanwhile Mexico's GDP grew by only 0.2% in the second quarter of 2024 in real terms, compared to the first quarter, slightly below the consensus of 0.4%, and preliminary GDP data indicated seasonally-adjusted annual growth of just 1.1% in real terms. In the first half of 2024, GDP rose by 1.5% compared to the same period in 2023.
Former senior Banxico economist Alberto Armijo told MNI in an interview that the central bank is setting the stage for interest rate cuts at each of its three remaining meetings this year, though a pause in November to evaluate the effects of previous cuts cannot be ruled out. (See MNI INTERVIEW: Banxico Opens Door To Further Rate Cuts -Armijo)
In contrast, Jessica Roldan, former head of monetary research at Banxico, told MNI last month that she expected the central bank to hold the rate at 10.75%, with borrowing costs ending the year at 10.25%. (See MNI INTERVIEW: Banxico Easing Pause In Sight- Roldan)