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Pantheon: Latest Data Suggest Banxico To Cut Rates In February

MEXICO
  • Following the release of Mexico inflation data earlier today, Pantheon note core inflation continues to fall rapidly and that the economy is no longer resilient to tighter financial conditions and a less benign external backdrop.
  • Pantheon explain that sharp drops in primary output and industrial production (down by 6.2% & 1.0% m/m, respectively) were the key drivers of the IGAE’s appalling performance in November; output fell 0.5% m/m, the biggest drop since September 2021. Activity in the service sector rose 0.2% in November, but this failed to reverse the 0.4% fall in October.
  • Assuming a flat reading in December, which is in line with Pantheon’s forecast, the IGAE index would increase 0.1% q/q, the smallest gain in more than two years; the underlying trend is now downward.
  • This, coupled with gradually falling core inflation pressures, suggests that Banxico will cut rates next month. That said, bad weather conditions can easily scare away the Board, forcing it to delay action to March.
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