Mexico City.- The Bank of Mexico (Banxico) has already telegraphed the end of the cycle of monetary restriction, according to Banorte strategists.
Analysts from the financial institution believe that the most recent comments by some members of Banxico’s Governing Board allude to the fact that the end of the cycle of increases was reached in March.
Despite a still complex outlook for inflation and the possibility of another increase of more than 25 base points in the reference rate of the Federal Reserve (Fed) next week, they comment that Banxico considers that the current level of the rate and the lagged effect of monetary policy are sufficient to support the disinflationary process and reach the objective in its forecast horizon.
The probability that there will be no changes in the interest rate at the meeting of the Banco de México’s Governing Board on May 18 has increased significantly.
Taking into account our perception of the bias that both members (Governor Victoria Rodríguez and Deputy Governor Jonathan Heath) could have, Banorte experts infer that at least four of the five members of the Governing Board could vote in favor of maintaining the reference rate unchanged at May meeting.
If we add to the above a more complex scenario in the United States that could imply that the Fed would end its tightening cycle with a last hike of 25 basis points on May 3, there are enough arguments to change the estimates, they point out.
At Banorte they no longer expect a 25 basis point increase in the reference rate on May 18, but rather that they remain at 11.25 percent.
In addition, it is expected that they reaffirm that the restrictive cycle would already have ended if their vision of the inflationary process and panorama materializes.
Even with this small adjustment, Banorte’s strategists continue to believe that Banxico’s Governing Board will maintain the rate at that level for the rest of 2023, starting with the cuts in the first quarter of 2024.
On March 30, the Governing Board unanimously decided to increase the target for the overnight Interbank Interest Rate by 25 base points to 11.25 percent.
