Banxico Signals Gradual Interest Rate Cuts in 2024

Mexico's Central Bank (Banxico) held its first meeting of the year to discuss the potential for a short-term interest rate cut. However, board members insisted that any reduction in early 2024 should be gradual, as per the minutes of their December monetary policy meeting.

The Board emphasized the need for caution in initiating the easing process, advocating for subtle and careful adjustments. "In the first quarter meetings of 2024, when assessing the possibility of reducing the reference rate, caution will be necessary. It was pointed out that the cautious approach means that downward adjustments, when macroeconomic conditions allow, should be gradual."

In November, Banxico maintained the Interbank Interest Rate at 11.25%, with a change in language within the board's report. The phrase "prolonged time," indicating an expectation to sustain current rate levels, was replaced by "some time." This slight change implied a likely decrease in interest rates in the first half of the upcoming year, as previously reported by MBN.

While progress has been made in the country's disinflationary process, Banxico's Governing Board acknowledged that the risk to the indicator remains tilted upward, and some challenges could hinder its return to the 3% target.

In response to this, the members of the Board agreed that decisions should align with the country’s needs, according to El Financiero. Regarding a potential rate cut, currently at 11.25%, one member explicitly mentioned the possibility of a fine adjustment at the end of the first quarter or in the second quarter of this year. Another member observed the conditions for such a move in February or March.

“The Governing Board will closely monitor inflationary pressures, as well as all factors influencing the projected path for inflation and its expectations. It considers that to achieve the orderly and sustained convergence of general inflation to the 3% target, it will be necessary to maintain the reference rate at its current level for a certain period,” reads the minute. “The central bank reaffirms its commitment to its primary mandate and the need to persevere in its efforts to consolidate an environment of low and stable inflation.”