Slowing inflation opens the door to a new rate cut in Mexico

Headline inflation in Mexico slowed to 4.99% in August from 5.57% in July, after five consecutive months of increases, statistics agency Inegi reported.

The figure was below the consensus expectations of analysts projecting inflation to reach 5.09%, which could open the door for a new cut in the policy rate. The central bank (Banxico) will make a decision on September 26.

"Inflation has finally stopped its gallop, but as a result of the fall in volatile prices, particularly for agricultural products," Alfredo Coutiño, director of Moody's Analytics, posted on social network X after the monthly data was released.

In its latest announcement, Banxico's governing board surprised the market by cutting the benchmark rate by 25 basis points to 10.75%, despite having adjusted its inflation outlook upwards.

“With the report… in which it returns again to this disinflationary process, together with the fact that the underlying rate remained at 4%, within the upper objective, and the possibility that the Federal Reserve will cut the rate, it provides sufficient arguments to think that we could see a 25 basis point reduction in the rate by Banxico on September 26,” James Salazar, deputy director of economic analysis at CI Banco, told BNamericas.

"It is this combination of the inflation report, together with the possibility of the Fed lowering rates again" that anticipates a new possible cut, Salazar added, even though the exchange rate has exceeded 20 pesos per dollar, pressured by the uncertainty the expected approval of the judicial reform has created.