US rate will have more weight in Banxico's decisions: Heath
It will be until the second half of the year when the United States rate will have greater weight in the decisions of the Bank of Mexico , acknowledged Deputy Governor Jonathan Heath .
The interest rate differential between Mexico and the United States will always be part of the Bank of Mexico's reaction function and one of the variables being monitored, he explained while participating in Banorte's institutional podcast.
But in the short term, in the May and June decisions, the weight of this differential in the Mexican central bank's decision will remain close to zero, he emphasized. And it won't be until the second half of the year that its relevance will be greatest, he projected.
Separately, Jaime Álvarez, vice president of investments at the fund manager and operator Skandia, explained that this differential is the incentive Mexico offers investors to stay in the market during times of uncertainty.
The central banker emphasized in the aforementioned podcast that "there was a time when maintaining that differential was quite important. I'd say it was around 2022 or early 2023, but in the last couple of years, it hasn't been as important," he acknowledged.
At that time, he says, maintaining the differential was crucial when Mexico's inflation trended upward due to global shocks and reached a peak of 8.70% in September 2022, the highest annual variation in two decades.
As the deputy governor explained, inflation is currently much closer to the target, and the fact that the economic cycle is pointing to a much more negative output gap provides room for a lower interest rate.
The Skandia strategist explained that a restrictive rate like the one we still have in Mexico complicates economic growth.
Therefore, it is important to continue with the cuts to bring it closer to neutrality, especially given that there is evidence of a technical recession in the economy, which is also reducing the pressure on demand and inflation, Álvarez commented.
The central banker commented that it is always important to take into account the position of the economic cycle and the slack in the output gap when making monetary decisions.
"If we have a stagnant economy, with a likelihood of entering a recession or experiencing some period of stagnation, this creates a more negative output gap and helps to reduce inflationary pressures, which gives us room to have a less restrictive monetary stance," he noted.
We remain equally concerned about meeting the inflation target, "but we recognize that we are much closer to achieving it than we were one or two years ago. And the fact that the growth cycle is pointing to a much more negative output gap than we had thought opens the door for us to lower the rate and continue to hope that inflation will eventually reach the specific target of 3 percent."
It will end the year between 7.75 and 8%: analystsStrategists at the fund operator Skandia, Valores Mexicanos Casa de Bolsa (Valmex), and Banco Base all agree that the Board of Governors will implement a new 50-point adjustment in the decision scheduled for May 15.
Two of them, Gabriela Siller, director of economic and financial analysis at Banco Base, and Gerónimo Ugarte, chief economist at Valmex, considered that there is a possibility that the decision of the Governing Board scheduled for May will be made by a majority.
That is, it could be the case that one of the members votes for a 25 basis point cut, less than the market expects. This is due to the incorporation of inflation data that has been under greater pressure from the exchange rate, especially in commodity prices.
Siller estimates that the Mexican rate will end the year at 8%, while experts at Valmex and Skandia anticipate that the Governing Board will leave the rate at 7.75% in December, a level that will be "more neutral" and much more in line with the conditions of less pressured inflation in a recessionary economic cycle.
Eleconomista
