Higher inflation not expected to slow Mexico's monetary easing

The rise in Mexico’s headline inflation in October, after two consecutive months of declines, will not prevent the central bank (Banxico) from making a new cut in the policy rate, according to analysts.

In a Citibanamex survey of analysts, all respondents said they expect Banxico to cut the rate by 25 basis points at its next policy committee meeting on November 14 to 10.25%.

On Thursday, statistics office Inegi said October inflation jumped to 4.76% annually from 4.58% in September but the fact that the US Federal Reserve cut its target rate for the second consecutive time by 25bp to between 4.50% and 4.75% reinforces expectations of a similar move in Mexico.

“The rebound we observed in the [inflation] report was to a certain extent expected, or slightly higher, but… it doesn’t change the trajectory we assume for the following months,” James Salazar, deputy director of economic analysis at CI Banco, said in an interview with BNamericas.

“We still have the probability of closing the year with an inflation rate of around 4.50%, and it’s very likely that we’ll see a decline in annual terms in the following reports. There are even positive signs in the services sector that is of most concern.” 

Salazar believes that Banxico “has the path open” to continue cutting the policy rate. “We’re talking about at least another 25 basis points and it will continue to leave open the possibility of continuing with the cuts, so we assume that it will also do the same in December,” he said, adding that the Fed cut gives the green light for Banxico to stick to the process of monetary easing.

For the end of 2024, the median estimate for the benchmark rate in the Citibanamex survey remained unchanged from the previous survey at 10.0%. At the beginning of the year, the rate was at a record 11.25%.