Mexico's Central Bank Likely to Double Pace of Interest Rate Cuts
Key Points:
* Banxico is widely expected to reduce its benchmark rate by 50 basis points to 9.5%.
* Inflation has eased within the central bank's target range, while growth has slowed.
* The threat of U.S. tariffs has been delayed for one month, providing temporary relief.
Analysis:
Mexico's central bank, Banco de Mexico (Banxico), is poised to accelerate its monetary easing on Thursday, potentially cutting its key interest rate by half a percentage point. This move is supported by several factors:
Slowing Growth and Inflation:
Mexico's economy has experienced a slowdown, with growth slowing to 1.5% in 2024 and contracting in the final quarter. Inflation has also moderated to 3.69%, within the central bank's target range.
Delayed Tariffs:
President Donald Trump's announcement of 25% tariffs on Mexican exports has been delayed for a month, providing a temporary reprieve for the Mexican economy. This delay allows Banxico to consider monetary easing to mitigate the potential impact of tariffs.
Bank Statement:
Banxico Governor Victoria Rodriguez has indicated that the bank is open to considering larger-than-average rate cuts. The bank has also acknowledged the risks posed by tariffs and emphasized its data-dependent approach to future decisions.
Board Changes:
On Wednesday night, the Senate approved the appointment of Jose Gabriel Cuadra Garcia to Banxico's board. This brings the board back up to full strength and will allow Cuadra to participate in the rate-setting meeting.
Conclusion:
The combination of slowing growth, moderate inflation, and delayed tariffs suggests that Banxico is likely to deliver a significant rate cut on Thursday. This move will provide support to the Mexican economy and help to mitigate the potential impact of any future tariffs.