The central bank of Mexico (Banxico) released the minutes of November's monetary policy meeting, in which board members unanimously maintained the policy rate at 11.25%, as expected. All Board members seem open to discuss the first rate cut in the beginning of next year, consistent with the slight change in the forward guidance of the corresponding statement: keeping the nominal rate for "some time", instead of a "prolonged period of time".
Two members seem more hawkish than the rest of the board members. One board member pointed to several factors that may complicate monetary policy decisions: next year's expansionary fiscal stance amid already tight cyclical conditions and the lengthening of the Fed’s strategy of keeping higher rates for longer. While the same member acknowledged there is a possibility of adjusting the policy rate in 1Q24, such an adjustment would be data dependent. Another member mentioned the possibility of a “fine tuning” rate cut in 1Q24 so that the real ex-ante policy rate is not too restrictive, suggesting keeping a range between 7.0-7.5%. The same member added that the lack of coordination between fiscal and monetary policies could delay the transmission of monetary policy and hinder its normalization.
Meanwhile, one board member seemed more open to cut as soon as next February. This member noted that considering the improvement in the inflation outlook, the reference rate cut could come at the beginning of 1Q24. Still, the same member mentioned that if rate adjustments are implemented they would be gradual and not necessarily continuous.
In our view, the minutes also suggest the first rate cut could come in 1Q24, in line with the change in the forward guidance of the recent monetary policy statement. Next inflation prints and the December monetary policy statement will likely give us a better view of the timing of the first rate cut within 1Q24. Our end of this year and next year policy rate forecasts stand at 11.25% and 9.00%, respectively.