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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#BdeM #cuts #interest #rates #consecutive #time
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Considering the potential for both upward and downward risks to inflation forecasts, what strategies might the BdeM consider to ensure a “soft landing” for the Mexican economy, avoiding both runaway inflation and a sharp economic downturn?
## Interview: dissecting Mexico’s interest rate cuts
**Introduction:**
Welcome back to World Today News. Today, we’re diving into the recent decision by the Bank of Mexico (BdeM) to cut its reference interest rate for the third consecutive time. Joining us are two esteemed analysts: [Guest 1 Name], known for their expertise in Mexican economics, and [Guest 2 Name], who specializes in global financial trends and their impact on Latin America.
Thank you both for being here.
**Section 1: Understanding the Context**
* **To our viewers, can you briefly explain the significance of the BdeM’s decision to cut interest rates, especially given this is the third consecutive reduction?**
* **[Guest 1]:** What are the primary factors contributing to this decision by the BdeM?
* **[Guest 2]:** How does this move by the BdeM fit into the broader landscape of global monetary policies? Are other central banks making similar decisions?
**
Section 2: Navigating Inflation and Economic Weakness**
* **The article mentions that general inflation rose to 4.76 percent in October. Can you elaborate on the factors driving this rise despite the interest rate cuts?**
* **[Guest 1]:** What are the potential consequences of maintaining this restrictive stance on economic growth in Mexico?
* **[Guest 2]:** The BdeM also expects global shocks to continue fading. Which specific global factors are they likely referring to, and how might these affect Mexico’s economy?
**Section 3:
Looking Ahead: Risks and Opportunities**
* **The BdeM acknowledges both upward and downward risks to their inflation forecasts. Can you elaborate on the nature of these risks and their potential impact on future monetary policy decisions?**
* **[Guest 1]:** What specific steps can the Mexican government take to mitigate these risks and promote economic stability?
* **[Guest 2]:** Valmex analysts predict further rate cuts in December and 2025. What are the main factors influencing this prediction, and what are the potential ramifications of such a trajectory?
* **[Guest 2]:** Conversely, Ve por Más suggests a more cautious approach, citing potential challenges to inflation subsiding. What are their reasons for this differing outlook?
**Conclusion:**
Thank you both for sharing your valuable insights. The BdeM’s decision to lower interest rates presents a complex and multifaceted situation for Mexico. As we continue to monitor the evolving economic landscape, understanding these nuances is crucial for informed decision-making.
We encourage our viewers to stay tuned for further analysis and updates on this critical topic.
