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Further rate cuts will be data dependent.
2024/03/21 | Andrés Pérez M. & Julio Ruiz

In a divided decision, Banco de Mexico (Banxico) cut its policy rate by 25-bp (to 11.00%), in line with our forecast and market expectations. While four of the five Board members voted for the 25-bp cut, deputy governor Irene Espinosa voted to maintain the policy rate unchanged at 11.25%. We note she had previously expressed concerns about the inflation environment. The new forward guidance suggests further rate cuts will be data dependent: In the next monetary policy meetings, it will make its decisions depending on available information”. However, the fact that the statement does not explicitly mention “the possibility of adjusting its policy rate” as in the previous communique, suggest pauses may not be ruled out. Following the decision, the one year ex-ante real rate fell from 7.43% to 7.18%, well within contractionary territory.

Headline and core inflation forecasts increased slightly in the short-term but they continue to converge to the target in 2Q25.  Headline inflation was increased 10-bps in each of the last three quarters of 2024 (relative to the previous statement), reaching 3.6% in 4Q24. Core inflation forecasts for the first three quarters of 2024 were also increased by 10-bps, reaching 3.5% in 4Q24.


The balance of risks for inflation remained tilted to the upside, with the list of upside and downside risks unchanged, relative to the previous statement.

Upside risks to inflation include, persistence of core inflation, currency depreciation, greater cost related pressures, greater than expected resilience of the economy, climate related impacts and the intensification of geopolitical conflicts. On the other hand, downside risks for inflation include a faster than anticipated slowdown of the global economy, lower pass-through from cost related pressures and the appreciation of the currency.

Our take: The data dependent forward guidance for further rate cuts suggests, in our view, that rate cuts are likely in the coming meetings. Our base case, remains for the central bank to cut by 25-bp in each of the policy meetings of the year, reaching an end of year level of 9.50%, still well above neutral. However, the fact that the forward guidance does not explicitly mention the possibility of an “adjustment” in the subsequent meetings amid lingering risk to inflation means pauses are not discarded, in our view. We note that Banxico has not paused between meetings in previous easing cycles. We will have more information about today’s policy decision in the minutes, due two weeks from now (April 4). The next monetary policy decision will be on May 9, with four inflation releases before the decision.