[ad_1]
(Bloomberg) — Mexico kept borrowing costs at a record high for the seventh straight meeting on Thursday as inflation accelerated for the third straight month in January and services prices remain sticky, even as other metrics of demand cool.
Banxico, as the central bank is known, held its key interest rate at 11.25%, as forecast by 26 of 30 economists in a Bloomberg survey. Four analysts expected a quarter-point cut as core inflation, which the bank watches closely, had eased steadily and the economy has shown signs of a slowdown.
Banxico in December repeated guidance asserting that it will hold rates “for some time” but also began to discuss chances of a near-term rate cut. Policymakers, led by Governor Victoria Rodriguez, emphasized that when they do begin to ease — this quarter or next — they’ll do so only with “fine-tuning” and “cautious” adjustments, aware that keeping rates too high for too long could further impact activity in the cooling economy.
The previous comments show that the board was “worried that services inflation doesn’t slow and that there could be a reacceleration of the pressures of aggregated demand,” said Joan Enric Domene Camacho, chief Latin America economist at Oxford Economics Ltd, before the decision.
Read more: Banxico’s Board Sees Gradual Cuts to Record-High Rates This Year
Earlier Thursday, a government report showed consumer prices rose 4.88% on an annual basis in January, the fastest pace since June 2023.
The uptick was driven by food prices, which were pummeled by the El Niño weather phenomenon and climate change, with fresh fruit and vegetables climbing nearly 22% compared to a year earlier. The headline print has now accelerated every month since October, and is nearly two percentage points above the central bank’s target of 3% plus or minus 1 percentage point.
But core inflation, which strips out volatile items like fuel and fresh food and is closely watched in Mexico, continued a steady slowdown that began in January 2023. Its impact on overall price growth is now back to pre-pandemic levels, said Barclays’ chief Latin America economist Gabriel Casillas, which “is key for Banxico to be able to reduce the degree of restriction and start cutting rates as soon as in March.”
Latin America’s second-biggest economy downshifted more than forecast in the fourth quarter, according to data posted Jan. 30, to a year-on-year pace of 2.4%, the slowest expansion since 2021. Analysts surveyed by Bloomberg see output falling for a third straight year in 2024.
The overall trend in inflation and a decelerating economy have analysts expecting Banxico to begin cutting soon. The most recent Citi survey of local economists published Tuesday has Banxico beginning reductions at its March meeting with a quarter-point move down to 11% and gradually whittle that to 9.5% by year-end.
Latin America’s other major inflation-targeting central banks — Brazil, Chile, Colombia, Peru — are all cutting borrowing costs, making Banxico the lone holdout in part because its economy had continued to perform well.
“As long as core inflation continues decelerating in a sustained manner, there’s space for a 25-basis-point adjustment in March,” said Janneth Quiroz Zamora, the director of economic research at Monex Casa de Bolsa, said before Thursday’s decision. “The February announcement might be too soon, because they’re waiting to have more evidence.”
–With assistance from Rafael Gayol and Alex Vasquez.
More stories like this are available on bloomberg.com
©2024 Bloomberg L.P.
Here’s your comprehensive 3-minute summary of all the things Finance Minister Nirmala Sitharaman said in her Budget speech: Click to download!
Download The Mint News App to get Daily Market Updates.
Published: 09 Feb 2024, 01:08 AM IST
[ad_2]
Source link