The majority of seven analysts anticipate that Banco de México (Banxico) will not raise the rate at the next monetary meeting on May 18, supported by the downward trajectory already achieved by inflation and core inflation.
Only one, Bloomberg Economics economist for Latin America, Felipe Hernández, anticipates that the Banxico will drive a last increment of 25 basis points, which will leave the terminal rate of the cycle at 11.50%.
The six analysts who believe that the monetary pause will begin in May are in the institutions Banco Base, Banorte, Goldman Sachs, XP Sec., Valmex and Pantheon Macroeconomics.
“Banxico’s pause in May is a fait accompli,” said Marco Oviedo, XP Securities’ chief economist for Latin America, from Brazil.
We believe that Banxico it will remain on hold from May through October, particularly if core inflation falls and 12-month inflation expectations decline below 4%, he said.
From London, the chief economist for Latin America at Pantheon Macroeconomics, Andrés Abadía, specified that the slowdown in inflation in April was strong enough to allow Banxico to stay on the sidelines.
“The rebound of the Mexican peso and the favorable base effects also suggest that the disinflation trend will continue in the coming months, which will allow the authorities to soften their tone,” he observed.
Inflation far from target: Bloomberg
The only expert of the seven consulted who anticipates a last increase in the rate, from Bloomberg, argues that inflation and inflation expectations remain at high levels, there are still risks and uncertainty remains high.
From his perspective, “the inflation data published since the last meeting -on March 30- have been favorable with total and subjacent inflation falling and in line with what was expected by Banxico.”
“However, we believe that the Banxico he prefers to have more information that confirms this trend before concluding the rate increase cycle and that with the information he has so far he prefers to increase the rate on May 18.”
He expects a divided decision, since the inflation data for April could provide an opportunity to keep the rate unchanged.
From New York, the economist for Latin America at Goldman Sachs, Alberto Ramos, considered that the stability of inflation expectations, the Fed’s monetary policy signals and the slight progress in inflation and core inflation are indications that further rate increases are no longer necessary.
Pause to allow constraint to act
The chief economist of the investment fund operator Valores Mexicanos Casa de Bolsa (Valmex), Víctor Ceja Cruz, also believes that the terminal rate was already reached in March, when it reached 11.25 percent.
The pause is established to identify the impact of monetary policy on economic activity and inflation. This period could end in March 2024, when it anticipates a first rate cut.
The XP Sec expert believes that the time that the rate will remain unchanged will be six months and projects that if inflation expectations fall below 4%, Banxico would apply the first cut on November 9.
Banorte experts consider that the Bank of Mexico will maintain a hawkish tone and a cautious stance due to the persistence of concerns about the dynamics of the underlying. And this specifically means that there is still time to start the cuts, which they also see until next year, according to the Valmex expert.
