In a significant development in the Mexican financial landscape, a Reuters poll conducted on Monday has indicated that Banco de México, commonly known as Banxico, is likely to reduce its interest rates to 8.5% on May 15. This anticipated move comes even as the country continues to grapple with high inflation levels that are hovering near the upper limit of the central bank‘s target range.
The poll, which surveyed 31 economists, reveals a strong consensus. A staggering 30 of these economists expect Banxico to execute its third consecutive 50 basis points (bps) cut. This expectation follows Banxico’s statement during its latest monetary policy meeting, where it was noted that if inflation trends permit, the bank could consider substantial rate adjustments in its subsequent policy decisions.
Mexico’s inflation situation was further illuminated by the latest inflation report, released just last week. The data showed that prices in the country increased by 3.93% on a year – over – year (YoY) basis in April. This figure is a crucial indicator for Banxico’s policymakers as they deliberate on interest rate changes.
Banxico’s policymakers seem to be increasingly concerned about the state of economic growth, as evidenced by their recent public statements. Their appearances in the media have hinted at apprehensions regarding the economy’s trajectory. Private analysts, too, have weighed in, warning that the risks of another economic contraction in Mexico remain palpable.
Looking ahead to the June meeting, the Reuters poll indicates that 19 out of 21 analysts are forecasting yet another rate cut. The poll, which collated 23 forecasts, also shows that the median prediction is for Mexico’s key interest rate to end the year at 7.75%. This suggests that the market anticipates a continued downward trend in interest rates as Banxico tries to balance inflation control with promoting economic growth.
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