Central bank slows rate cuts, but still brings interest rate to a 3-year low

Mexico’s cardinal slope slowed its gait of monetary easing Thursday, cutting its benchmark involvement complaint by 25 ground points aft 4 consecutive 50-basis-point cuts this year. 

Still, the 4-1 ballot lowered the complaint to a three-year debased of 7.75%.

The determination to chopped the complaint by lone 25 ground points was mostly expected aft the five-member governing committee indicated that smaller reductions were likely.

Deputy Governor Jonathan Heath was the lone dissenter, voting to clasp the involvement complaint astatine 8%, the 2nd consecutive gathering successful which helium has voiced a penchant for much caution.

The 4 consecutive 50-basis-point cuts that the cardinal slope (Bank of Mexico oregon Banxico) had approved earlier Thursday’s gathering came aft the overnight interbank involvement complaint sat astatine 10% earlier the bank’s February meeting.

News bureau Reuters pointed retired that Banxico is battling the duplicate challenges of lowering ostentation portion stimulating the economy. This represents a hard balancing enactment arsenic “weak economical maturation and uncertainty tied to commercialized tensions and geopolitical developments” offset caller affirmative ostentation news.

Central slope Deputy Governor Jonathan Heath, shown present speaking astatine a league successful April, has been the sole dissenter astatine the past 2 meetings, opposing caller complaint cuts. (Moisés Pablo/Cuartoscuro.com)

Official information released earlier the bank’s gathering showed ostentation had slowed successful July to 3.51%, its lowest level successful astir 5 years, arsenic shrinking nutrient and vigor prices offset acceleration successful user goods prices.

In arguing to clasp the involvement complaint astatine 8% past month, Heath had called for prudence, arguing that it was “unrealistic to expect ostentation to autumn connected its ain conscionable due to the fact that of stagnant economical forecasts.”

Mexico’s system grew by 0.7% successful the precocious completed 2nd quarter, pursuing an anemic 0.1% people successful the archetypal quarter. A Banxico canvass indicates that analysts forecast maturation of conscionable 0.3% by year’s end.

Banxico’s post-meeting connection said the determination “took into relationship the behaviour of the speech rate, the weakness of economical activity, and the imaginable interaction of changes successful commercialized policies worldwide.”

In a probe paper, BBVA banking radical said the statement’s guardant guidance “retained the strategical ambiguity introduced successful June, reinforcing a data-dependent approach, with nary explicit penchant for the adjacent move.”

While Thursday’s Banxico connection did suggest the committee would see complaint changes going forward, it withheld circumstantial connection regarding aboriginal cuts that had been included successful erstwhile announcements.

BBVA said the lack of caller connection successful Banxico’s connection suggests the Board of Governors volition beryllium cautious going forward, but that they “remain unfastened to continuing the easing cycle, albeit astatine the existent much gradual gait of 25 ground points.”

Inflation information volition besides power aboriginal decisions. Although Thursday’s ostentation quality was positive, the outlook was mostly unchanged since halfway ostentation remained precocious astatine 4.23%. 

Banxico did set its forecast for header (total) ostentation successful the 3rd quarter, lowering it to 3.8% from 4.1%. However, the slope raised its forecast for Q3 halfway ostentation (which excludes vigor and food) from 3.8% to 4.1%.

Banxico’s adjacent Board of Governors gathering is scheduled for Sept. 25.

With reports from Reuters, El Economista and El Financiero