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None of the board members gave a clear indication of when will Banxico assess cutting rates.
01/06/2023 | Joao Pedro Resende & Julio Ruiz

The central bank of Mexico (Banxico) released the minutes of May’s monetary policy meeting, in which board members unanimously voted to keep the policy rate unchanged at 11.25%. Overall, the minutes didn’t give additional significant information on the monetary forward guidance provided in the corresponding statement of how much time it means to “maintain the reference rate at its current level for an extended period.” 


None of the Board members gave a clear indication of when will the central bank would start considering nominal rate cuts, different from yesterday’s comments from the Governor - on the occasion of the inflation report publication - which suggested they will take a time longer than two monetary policy decisions to assess inflation evolution. One member considered difficult to anticipate the time during which the rate would remain at its current level, arguing it’s too early to begin discussing possible interest rate cuts. Other member noted that the restrictive monetary policy stance should continue for as long as necessary, adding that an additional nominal rate hike cannot be discarded if inflation does not subside. At the same time if inflation expectations were to decline an overly restrictive stance should be avoided, suggesting maintaining for now a real ex ante rate between 6-7%. A third member said that the restrictive monetary policy stance should be kept until confirming a clear downward trend in inflation, a neutral balance of risks for inflation and inflation expectations returning to their historical averages.  


Some members are still emphasizing inflationary pressures persist. One member underlined that the configuration of inflationary pressures is still fragile. Other member mentioned it should be communicated that although the main inflation indicators have behaved favorably, they have responded primarily to the evolution of external factors, while domestic inflationary pressures persist. In contrast, one Board member underlined that, although there is no conclusive evidence of domestic inflationary pressures, if they were present, they would be already addressed with the restrictive level that has been attained.  


We expect the policy rate to end this year at 11.25%, implying no rate cuts. However, we don’t discard rate cuts by the last quarter of this year depending on the evolution of core inflation.