Mexico’s central bank (Banxico) could make three more cuts to its benchmark interest rate this year, of 25 basis points each in September, November and December, Barclays Capital estimated, instead of the two cuts previously planned (for November and December).
Barclays analysts therefore expect Banxico to cut its reference rate consecutively until reaching the level of 7.50 percent at some point in 2025.
The reference rate currently stands at 10.75 percent, after last week’s 25 basis point cut.
Regarding inflation, the brokerage indicated that, in general, Latin America is experiencing greater non-core volatility, which poses challenges to central banks, together with a complex external environment and some idiosyncratic problems.
Food prices, particularly fruits and vegetables, have contributed heavily to inflation in countries such as Mexico and Colombia, while transportation costs, including airfare and fuel, have driven inflation in Brazil.
In response to this, monetary policy responses have been diverse.
Mexico and Peru have opted to cut interest rates despite high inflation, anticipating that current pressures are transitory and expecting future reductions in inflation rates.
Brazil, on the other hand, has taken a more cautious stance, ready to raise rates if necessary.
External factors, such as possible rate cuts by the US Federal Reserve, are influencing policy decisions in the region.
In this context, Barclays analysts continue to expect headline inflation in Mexico to decline to 4.3 percent by the end of 2024 and underlying inflation to decline to 3.7 percent.
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