Banxico calibrates adjustment to its rate in March

Banxico calibrates adjustment to its rate in March

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Mexico City.- Members of the Governing Board of the Bank of Mexico (Banxico) consider that at the March monetary policy meeting it could make a downward adjustment to its reference rate, located at 11.25 percent, but some stressed that caution should prevail .

“There is room to make a fine adjustment, of about 25 basis points, simply to keep it in the indicated range. That is what we must do and maintain this monetary stance for an extended period of time until we are sure that we are going to win this battle (against inflation). “said Jonathan Heath, deputy governor of the Bank after the presentation of the October-December 2023 Quarterly Report.

However, it would only be a limited adjustment, since the balance of risks for inflation is still very biased upwards.

“The risk is much more that it could be higher than that it could be lower. We have a very persistent inflation that does not seem to let up, especially the services component, which is the most worrying,” he said.

In this regard, Victoria Rodríguez Ceja, governor of Banxico, stated that there are elements to analyze a cut.

He explained that Mexico is in a disinflationary process that has continued to advance after the fading of the strong shocks faced in the Covid-19 pandemic and the war in Ukraine, and due to the central bank’s monetary policy actions.

Meanwhile, Deputy Governor Omar Mejía stated that conditions already exist to discuss a rate cut.

He considered that there is an improvement in the outlook that includes the lower frequency of upward price revisions, a less adverse balance of risks for inflation compared to the end of 2022 and beginning of 2023, among others.

“I believe that the margin to reduce this reference rate is wide,” Mejía highlighted.

However, Deputy Governor Irene Espinosa stated that it is still premature to talk about what should be discussed in the next monetary policy meeting, so the evolution of general inflation should be reviewed.

“With the pressures and the balance of risks for inflation biased upwards, we cannot rule out that core inflation could remain constant, stagnant or with strong persistence, and where non-core inflation could also rebound.

“Then we must consider the entire set of information and, based on that entire package and not on specific data, we should evaluate the March decision,” he mentioned.

In turn, Deputy Governor Galia Borja indicated that the members of the Governing Board must continue to be “very cautious and very prudent.”

Banxico reduces GDP growth projection Banxico adjusted downwards its forecast for the country’s economic growth for 2024 from 3.0 to 2.8 percent, while maintaining its forecast that in 2025 the expansion will be 1.5 percent.

The change in the expectation of growth of the Gross Domestic Product (GDP) is due to the fact that the lower growth in the last quarter of last year compared to what was anticipated induces an arithmetic effect of a lower growth base for 2024.

It also left its expectations for headline inflation and core inflation unchanged from those contemplated in its monetary policy announcement of February 8. In said announcement he had announced that he adjusted upward his expectation for general inflation for the first quarter of this year from 4.3 percent to 4.7 percent.

Regarding the economic growth expected for this year, Banxico described that the expectation remains that productive activity will show a biased expansion towards the first semester.

Furthermore, the central bank estimates that the higher public spending in relation to the previous year will trigger higher domestic spending in general, considering both the direct effects and spillovers to private consumption and investment.

Meanwhile, a slowdown in productive activity is expected for the second half of the year, in line with the evolution that has been observed in episodes of previous electoral years, argued in the Report published this Thursday.

In turn, the Mexican central bank anticipates that external demand will present weakness throughout the year.

Banxico also mentioned that it expects that during 2024 and 2025 nearshoring in Mexico will give a certain boost to economic activity, although it clarified that there is high uncertainty regarding its magnitude and effects.

By 2025, it is also estimated that the planned fiscal consolidation effort will be reflected in lower domestic spending.

“On the other hand, it is anticipated that external demand will gain greater weight given the better performance expected for the United States economy in that year relative to the previous one,” he commented.

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