MNI WATCH: Banxico To Hold At 11%; Hunt For Hints Of Guidance
Several board members have adopted a cautious tone on monetary policy, leading markets to believe Banxico will keep borrowing costs unchanged.
The Central Bank of Mexico is expected to hold its overnight interbank interest rate at 11.00% Thursday after a 25 basis points cut in March that came with no no clear clues into next policy steps, and stopped short of describing the first rate cut in more than three years as the start of a new easing cycle.
Investors will be looking for any crumbs of guidance about future action from a central bank that has lagged its regional peers in reducing borrowing costs, although for now Banxico members appear inclined to make meeting-by-meeting decisions.
In the minutes of the last meeting, all members agreed inflation risks are tilted to the upside, particularly in services, as deputy governor Irene Espinosa highlighted market expectations for higher inflation than its official forecasts in her decision to vote against the March cut in favor of holding rates steady.
Several board members have adopted a cautious tone about monetary policy that has led market participants to bet Banxico will keep borrowing costs unchanged. (See MNI INTERVIEW: Banxico Declared Victory Too Soon - Alatorre)
BEHIND THE CURVE
Former director of economic studies at Banxico, Alejandro Werner, told MNI in an interview that Banxico is falling behind the curve because it should have started reducing its interest rates in the second half of 2023, adding that the monetary authority's decision not to depict the 25 basis point cut in March as the start of a new monetary easing push was unduly hawkish. (See MNI INTERVIEW: Banxico Should Have Begun Easing In '23-Werner)
For Werner, reducing rates by 25bp while the rate is at 11% doesn't make sense if it's not the initial step of an easing cycle.
Oscar Galvez-Soriano, former Banxico economist, said in an interview there's a reason the central bank was cautious about sending such a signal, since he does not think the March rate cut is necessarily the start of a deeper monetary ease. In contrast to Werner -- and emblematic of the inflection point at which the central bank finds itself -- he thinks it's very premature to lower borrowing costs at this time in Mexico even if the official rate is still quite high. (See MNI INTERVIEW: Banxico Unlikely To Cut Every Meeting - Soriano)