Mexico’s central financial institution opens door to bigger price cuts, citing progress on inflation

By Brendan O’Boyle

MEXICO CITY (Reuters) – The Financial institution of Mexico may enhance the dimensions of cuts to its benchmark rate of interest in future conferences as inflation eases in Latin America’s second-largest economic system, minutes from the central financial institution’s December financial coverage assembly confirmed on Thursday.

Banxico, because the Mexican central financial institution is understood, lowered its benchmark rate of interest by 25 foundation factors to 10.00% in a unanimous choice by its governing board final month.

“In view of the progress on disinflation, bigger downward changes might be thought of in some conferences, albeit sustaining a restrictive stance,” the minutes stated. 

A breakdown of the board members’ positions confirmed three of the 5 members supporting the dialogue of bigger price cuts.

Banxico started a rate-cutting cycle final March amid easing inflation, finally delivering 5 25-basis-point cuts to convey the benchmark price down from the file 11.25% that it reached in 2023.

The minutes “present that there’s a consensus to proceed decreasing the speed on the subsequent assembly, though there are variations within the tempo at which this might happen,” Actinver Analysis stated in a notice.

DISINFLATION PROGRESS

One among Banxico’s board members pointed to “the simple progress in disinflation” to help their view that “it’s mandatory to extend the magnitude of price cuts in a few of the upcoming financial coverage selections.”

One other member highlighted “the significance of speaking that changes of bigger magnitude might be applied on the subsequent coverage conferences.”

Banxico has taken a extra hawkish strategy to financial easing than that of a few of its Latin American counterparts, like Brazil and Uruguay, which have begun elevating charges once more after bringing them down rapidly solely to see inflation rebound.

Two board members remained cautious, warning towards untimely financial easing, with one “dedicated hawk” alerting towards “accelerating the tempo of easing or signaling that it might be executed at future conferences,” stated Alberto Ramos, chief Latin America economist at Goldman Sachs.

Nonetheless, a majority of administrators acknowledged that the inflation outlook continued to enhance, although the board revised its year-end inflation forecasts for 2025 increased.

“Most members acknowledged that the revision in forecasts doesn’t counsel an interruption within the disinflation course of, however slightly a extra gradual discount in headline and core inflation,” the minutes stated. 

Knowledge revealed earlier on Thursday confirmed Mexico’s annual headline inflation price fell greater than anticipated in December, reaching 4.21%.

Banxico targets inflation at 3%, plus or minus one share level.

Board member Jonathan Heath later stated in a social media put up on Thursday that the December inflation studying was “excellent news,” noting that it was the primary month wherein inflation fell beneath the 4.26% stage logged in October 2023.

Given the inflation outlook, Goldman Sachs sees the bar to extend the tempo of price cuts to 50 foundation factors as “not excessively excessive,” stated Ramos, whereas Actinver sees a better likelihood of a 25-basis-point minimize from Banxico in February, “with out ruling out the opportunity of a 50-basis-point adjustment.”