The governing board of the Bank of Mexico (BdeM) unanimously decided this Thursday to cut its reference interest rate by a quarter of a percentage point to bring it to a level of 10.25 percent. This is the third consecutive reduction and the fourth so far this year, with only one meeting left, which will be in December.
Since the cycle of cuts began in March of this year, the rate that determines the cost at which companies and families in Mexico are financed has been adjusted by one percentage point.
The central bank’s determination occurs in a context in which general inflation rose to 4.76 percent in October due to the effects of supply shocks that have affected the underlying component (which does not take into account volatile products), causing the forecasts to in the short term they will adjust upwards.
Analysts agreed that although the BdeM has slightly raised the general inflation projection for the fourth quarter of 2024 and the first two of 2025, the statement has a moderate tone that anticipates more rate cuts; Furthermore, it points out an economic weakness in the country and attributes the depression of the peso to external factors.
The central institute increased the inflation forecast for the fourth quarter of 2024 from 4.3 to 4.7 percent, while for the first quarter of 2025 it increased it from 3.7 to 3.9 percent and for the second it increased it from 3.3 to 3.4 percent.
He pointed out that although the inflation outlook still warrants a restrictive stance, the evolution it has presented implies that it is appropriate to reduce the degree of monetary tightening. It anticipates that the environment allows for additional adjustments to the reference rate, but will take into account the prospect that global shocks will continue to fade and the effects of weak economic activity.
Likewise, it will consider the impact of the restrictive monetary stance that has been maintained, but the actions that will be put into practice will be such that the reference rate is consistent, at all times, with the trajectory required to promote the orderly and sustained convergence of the general inflation to the target of 3 percent.
His forecasts, he said, are subject to risks. On the rise: persistence of underlying inflation, greater exchange rate depreciation, greater cost pressures, climatic effects and escalation of geopolitical conflicts. On the downside: lower economic activity than anticipated, a lower pass-through of some cost pressures, and the effect of exchange rate depreciation on inflation being lower than anticipated.
It is considered that the balance of risks with respect to the expected trajectory of inflation in the forecast horizon remains biased upwards. However, the inflation outlook has been improving after the deep shocks caused by the pandemic and the war in Ukraine.
he pointed out.
Valmex analysts highlighted that the recent evolution of the data could allow the level of restriction to continue to be moderated, which is why they anticipate that the BdeM will make a cut of a quarter of a point in the decision of December 19 to end the year in 10 percent. In turn, it expects that the flexibility of monetary policy will continue next year and that the rate will end 2025 at 8 percent.
For Ve por Más, the price outlook faces important challenges that may make inflation take longer to subside than estimated by the BdeM, and financial volatility may worsen.
However, he noted that the unanimous decision and future guidance in the statement illustrate a more permissive governing board
with inflation, so it is estimated that the rate will close 2024 at 10 percent.
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