Should Mexico’s interest rate cuts continue? The central bank appears divided

The one-two punch of rising ostentation and stagnant maturation person weakened assurance successful Mexico’s economy, but the Bank of Mexico (Banxico) supplied immoderate affirmative rotation successful its biannual stableness report, suggesting it volition proceed to little involvement rates.

However, statement connected that strategy whitethorn beryllium hard to reach, arsenic salient cardinal slope Deputy Governor Jonathan Heath suggested that it whitethorn beryllium clip to “pause” the complaint cuts.

Banxico Governor Victoria Rodríguez, shown present astatine an April Senate appearance, told the property Wednesday that Mexico “has a coagulated macroeconomic framework.” (Graciela López/Cuartoscuro)

Either way, Banxico Governor Victoria Rodríguez sought to assuage fears astir Mexico’s banking strategy and its system connected Wednesday, pointing to the optimistic outlook successful the report, portion insisting Mexico “has a coagulated macroeconomic framework.”

The study says Mexico’s fiscal strategy has shown “resilience” contempt lingering commercialized tensions with the U.S. and a planetary discourse characterized by an economical slowdown.

Banxcio insists the nation’s banking strategy “maintains coagulated liquidity with superior levels supra regulatory minimums,” according to Reuters, and accent tests bespeak it tin withstand simulated adverse scenarios, the study says.

Even so, Banxico faces a hard balancing act: It indispensable easiness rising ostentation portion stimulating the sluggish economy.

The situation is made much formidable by concerns of semipermanent precocious inflation, particularly arsenic header ostentation roseate to 4.42% successful May, good supra the 3% target. The concerns are partially fueled by Banxico’s ain forecast that ostentation won’t converge connected the people until the 3rd 4th of 2026.

Talking to reporters connected Wednesday, Rodríguez insisted it would beryllium “premature” to reason that Mexico volition gaffe into a play of precocious inflation. She pointed to a dependable downward trajectory from the highs reached successful 2022, erstwhile it peaked astatine 8.7%.

Still, halfway ostentation — excluding volatile items similar nutrient and lipid — deed 4.06% successful May, its highest level successful astir a year.

Although Rodriguez said Banxico volition astir apt proceed easing its monetary policy, the determination is not apt to beryllium unanimous.

Heath said connected Tuesday that the spike successful ostentation requires a cautious stance.

“This mightiness beryllium the infinitesimal to intermission and survey the ostentation data,” helium said, referring to Banxico’s 3 consecutive 50 basis-point cuts to its benchmark involvement rate.

Heath did clarify that his posture reflected a much assertive attack to reducing ostentation by the 3rd 4th this twelvemonth arsenic opposed to Rodríguez’s penchant for gradual easing. He besides acknowledged that the concern could germinate depending connected changes successful the planetary system oregon with respect to U.S. commercialized policy.

A Reuters survey indicated that Banxico is expected to instrumentality a 4th consecutive 50-point complaint chopped astatine its adjacent gathering connected June 26.

Analysts cited by El Economista noted that the emergence successful merchandise prices could proceed to offset the diminution successful prices of services, preventing halfway ostentation from continuing to decline. However, they expect Banxico to stake that services prices volition statesman to autumn owed to cyclical conditions and, arsenic a result, to proceed their monetary easing aboriginal this month.

With reports from Reuters and El Economista