Mexico’s central bank will consider halting its cycle of interest rate hikes in the next board meeting in May, Governor Victoria Rodriguez Ceja told lawmakers on Tuesday, confirming the bank’s record monetary policy tightening is nearing an end.
(Bloomberg) — Mexico’s central bank will consider halting its cycle of interest rate hikes in the next board meeting in May, Governor Victoria Rodriguez Ceja told lawmakers on Tuesday, confirming the bank’s record monetary policy tightening is nearing an end.
“We will be evaluating in the next decision, on May 18, these factors and will be discussing whether it’s the moment to stop the increase in rates. We still have to have the discussion with the members of the board,” Rodriguez said during a congress presentation in Mexico City, highlighting recent decelerating inflation figures.
Read More: Mexico’s Inflation Slows Again, Giving Banxico Flexibility
Most Mexican interest-rate swaps fell to a session low as traders weighed the governor’s remarks. Two-year rates plunged 12 basis points Tuesday to the lowest in nearly three weeks.
“The possibility of Mexico not hiking in May has definitely risen,” said Luis Hurtado, a currency strategist at Canadian Imperial Bank of Commerce, adding that downward surprises in Mexico’s price pressures and inflation expectations are some of drivers for the next rate decision.
The board members of Banxico, as the central bank is known, voted unanimously to raise borrowing costs by a quarter of a percentage point in the last meeting, pushing the key rate to a record 11.25%. That, after the bank had surprised investors with a bigger-than-expected increase of 50 basis points in February amid signs at the time core inflation, which includes volatile items such as fuel and food, was taking longer to react to higher borrowing costs.
Read More: Mexico, Colombia Leave Door Open to Rate Hikes on Inflation
Since then, economists have debated if Banxico will push with an additional increase after clear signs the inflation rate in Latin America’s second-largest economy is now trending down. While Rodriguez’s comments were part of a scheduled testimony to Mexican senators, it was unusual for the governor to offer possible guidance that went beyond what was written in the prior monetary policy statement.
The comments show signs the central bank is now comfortable with keeping its monetary policy tight for a while to gradually guide inflation to its 3% target, said Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc.
Price gains in the first half of April slowed again to 6.24%, down from 6.58% in late March. Core inflation also decelerated giving Banxico some additional room.
While Rodriguez hint on a potential halt of Mexico’s rate hikes, Brendan McKenna, a currency strategist at Wells Fargo & Co. in New York, still sees more tightening ahead.
“Her comments were made to Mexico’s congress in the context of monetary policy,” he said. “A 25-basis-point hike is still very much in play for the next meeting.”
The famously hawkish central bank has increased its key rate by 725 basis points since June 2021 and has recently acted more aggressively than other inflation-targeting banks in Latin America.
–With assistance from Leda Alvim and Maria Elena Vizcaino.
(Updates with market reaction in third paragraph, economists’ comments starting in fourth paragraph.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.