Banco de México (Banxico) cut its target for the overnight interbank interest rate by 25 basis points to 10.75% on 8 August 2024, its second reduction of the easing cycle after a first cut in March 2024 that took the rate to 11.00%.
The decision was taken by a majority of the five-member Governing Board. Deputy governors Irene Espinosa Cantellano and Jonathan Heath dissented, voting to keep the rate at 11.00%.
HEADLINE INFLATION RISES
The cut came despite a rise in headline inflation, which reached 5.57% in July 2024, its highest level since May 2023, according to the national statistics institute INEGI. The Governing Board pointed to the trajectory of core inflation and its expected continued decline, and judged that the shocks affecting non-core inflation would dissipate over the coming quarters.
The board said that recent developments justified easing the degree of monetary tightening, while noting that the inflation outlook still warranted a restrictive stance. The March 2024 reduction had been the central bank's first rate cut since 2021.
RISKS SKEWED TO THE UPSIDE
Banxico said the balance of risks to the projected path of inflation remained skewed to the upside. Among the upside risks, it cited potential depreciation of the peso against the US dollar, climate-related factors including droughts and tropical storms, and geopolitical conflicts. On the downside, it said inflation could ease if economic activity slowed more than expected, if cost pressures decreased, or if the pass-through of currency depreciation to prices proved smaller than anticipated.
The decision was not widely anticipated: only 10 of 33 analysts surveyed by Citibanamex had expected a cut at the August meeting, with most expecting a cut in September or later.
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