Banxico expected to cut rates to 9% – Reuters

Source Fxstreet

A Reuters poll revealed that on March 27, Banco de Mexico (Banxico) is expected to cut interest rates by 50 bps amid the evolution of the disinflation process and an ongoing economic slowdown.

Economists expect rates to get as low as 8.25% in 2025

Of 25 economists, 23 expect the central bank to lower borrowing costs by 50 bps, from 9.50% to 9.00%. The other two economists estimate the Mexican central bank will keep rates unchanged.

This would be the second rate cut of that size, following February’s meeting in which the Governing Council approved reducing the main reference rate from 10.00% to 9.50% on a 4 to 1 vote split, with Deputy Governor Jonathan Heath dissenting, as he voted to reduce rates by 25 bps.

Even though Banxico’s mandate is to control inflation, the recent economic slowdown prompted the Mexican institution to ease policy, as policymakers justified that as the economy cools, so it does inflation.

Alongside this, Mexico’s economic docket is busy next week, with the release of March mid-month inflation, Retail Sales, and Trade Balance data.

Banxico FAQs

The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.

The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.

Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.

 

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