Is the end of the rising cycle of Banxico's interest rates near?

Is the end of the rising cycle of Banxico’s interest rates near?

Analysts agree that this message means that Banxico could make just one more increase to the reference rate and take it to 11% from the current 10.5%, although the magnitude of the adjustment will depend on how much inflation subsides.

What remains to be seen is when Banxico will end up disassociating itself from the Federal Reserve (Fed) and start with interest rate cuts.

Investment institutions such as Franklin Templeton and the Ve por Más (BX+) bank forecast that the national interest rate will drop in the second half of 2023; however, entities such as the credit risk rating agency Fitch consider that this will happen as of 2024.

The decision to lower rates will depend on inflation, which, according to Banxico’s estimates, could drop marginally in the first quarter of 2023 and continue at high levels until the fourth quarter of 2024, when it will converge to the target of 3% +/ – one percentage point.

A report by the Swiss firm UBS highlighted that Banxico’s rate will reach 10.75% in February, but that it will close 2023 at 8.5% while in 2024 the interest rate would be at levels of 5%.

“This forecast is largely based on a hawkish Fed. The most interesting question is whether Banxico can disassociate itself from the Fed, either upwards or downwards”, the report highlights.

UBS sees that the decoupling of Banxico from its North American peers will depend on the financial stability of Mexico and the performance of the peso.

Monex sees little willingness from Banxico’s members to make decisions other than the Fed, especially if stopping to follow its rhythm implies putting pressure on the behavior of the exchange rate.

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