Banxico Might Consider More Significant Rate Cuts: Victoria Rodríguez
08:32 01/10/2024 - PesoMXN.com
The Board of Governors of the Bank of Mexico (Banxico) is open to evaluating more substantial cuts to its benchmark interest rate in the future as inflation in the second-largest economy in Latin America begins to ease, said the institution's governor, Victoria Rodríguez, in an interview with Reuters. On September 26, Banxico reduced its key rate by 25 basis points, bringing it down to 10.50%, marking its second consecutive cut as inflationary pressures subside. Previously, in March, the rate was already cut by a quarter percentage point.
"I believe we could evaluate the magnitude of the adjustments to the benchmark interest rate in our upcoming meetings, considering current inflation levels," Rodríguez told on Monday night. The next monetary policy decisions from Banxico will be announced on November 14 and December 19. It’s worth noting that the most recent cut wasn’t approved by all Board members; Deputy Governor Jonathan Heath opted to keep the rate at 10.75%. Annual inflation in Mexico slowed more than expected, coming in at 4.66% in the first half of September, according to recent official data, marking the fourth consecutive fortnight of decline. Core inflation also eased to 3.95%, its lowest level since early 2021. "This change in the inflation outlook suggests that it is prudent to reduce the level of monetary tightening, although we still face challenges in this area," Rodríguez emphasized. Furthermore, last week, Banxico slightly adjusted its projection for annual general inflation for the fourth quarter to 4.3%, down from the previous 4.4%, and revised its core inflation expectation to 3.8% from the prior 3.9%. "The inflation outlook has improved significantly," added the governor of Banxico. Mexico's new president, Claudia Sheinbaum, will take office this Tuesday, and according to Rodríguez, the country's first female president will inherit an economy in a "solid situation." In her own words, Mexico has sustainable external accounts, a very moderate current account deficit, a robust banking system, and adequate levels of international reserves, despite this year's fiscal deficit approaching 6% of GDP, the highest since the 1980s.
Managing interest rates is crucial to steering the economy toward sustainable growth. It’s interesting to see how Banxico is weighing additional cuts in light of the easing inflation, but it will be essential to closely monitor inflation behavior and the outcomes of fiscal policy, especially with the new administration, to ensure that decisions made maintain economic stability.
