Growth outlook leads to Mexico pledge to end cuts
Mexico again lowered its benchmark rate by 25bp Friday, though officials indicated this would be the last cut for a while. Analysts see a sign of optimism.
Mexican authorities elected to cut the monetary policy rate
by 25bp to 3.50%, in line with expectations. However, Banxico did surprise with
language that suggested there wouldn’t be a need for additional cuts. While
inflation and disappointing growth thus far in 2013 are seen motivating the two
cuts in the current cycle, analysts said the strong language reflects confidence
in a rebound.
“The statement gives a sign of confidence to the markets
that the Mexican economy can recover before previously expected,” Scotia said
in a note following Friday’s decision.
Governor Augustin Carstens told
LatinFinance earlier this month
that Mexico’s economy – which faltered this year amid weak US demand for
exports and a slump in construction – was nevertheless poised for a rebound. The
official said it is likely that the US economy will grow between 2.5% and 3.0%
next year, pulling up Mexico’s growth along with it.
The decision took into account expectations of a significant
slack in the economy for a prolonged period of time, Goldman Sachs said,
balanced with optimism for the progress of the structural reforms and the
benefits they may deliver on the inflation front, as well as overall comfort on
the inflation outlook. The bank indicated that current stance is consistent
with the efficient convergence of inflation to the 3.0% target, meaning
additional cuts wouldn’t be advised.
“We were not expecting the [central bank] to explicitly
signal today the end of the cycle and/or to argue that the expected fiscal
stance is one of the reasons not to cut further,” Goldman said.
“Inflation expectations for 2014 increased as a
response to the likely tax hikes next year, but inflation expectations for the longer
term continue stable,” Itaú said. The shop does not forecast additional Mexican
policy moves until at least 2015. LF