Banxico will bring the rate up to 11.25% this year in the face of slow disinflation, experts forecast

Mexico and the United States will go through a disinflation process this year but it will not be fast enough to return inflation to the target of the central banks, explained the senior investment strategist for Latin America at Vanguard, Ignacio Saralegui.

His expectation for the growth of the Mexican economy is for growth to be between 1.5 and 2%, which will show some resistance to the recession that will occur in the United States.

Interviewed by El Economista, he believes that consumer spending will remain stable, encouraged by the flow of remittances and this demand will continue to put pressure on inflation.

Its central scenario for the United States is an increase in the Gross Domestic Product (GDP) of barely 0.5% in annual GDP; an expectation that incorporates a traditional recession of two or three consecutive quarters with negative performance. The duration of the recessive period in the United States will impact the Mexican economy so that it can register a growth of 1.5% this year.

For inflation in Mexico, it is estimated that it will reach an annual variation of 6% in 2023; this scenario will motivate Banco de México to place the terminal rate of the upward cycle at 11.25 or 11.50 percent.

The exact level of the reference rate in Mexico will also reflect the trajectory that the US Federal Reserve will define.

Unlike Mexico, the expert believes that the Fed’s decision incorporates its commitment to keep inflation under control to balance the lag with which it reacted at the start of the price shock. Therefore his projection on the Fed rate is in a range of 5.25 to 6 percent.

Mating is not being aligned

We do not see a decoupling between the decisions of Banco de México with respect to the Fed this year, since the risk of pressure in the exchange market that ends up also affecting the inflation process must be limited, he argued.

However, he admitted that Banco de México, like other Latin American economies, recognized the inflationary pressure long before the United States and raised rates months before the Fed.

We don’t think they have to be aligned with the Fed in their rate trajectory, but it is true that Mexico has benefited from the rate differential, which for now stands at 600 basis points.

positive outlook

The strategist observed that Mexico has a positive perspective that comes from a long time ago, which is the commercial relationship with the United States. And due to that same proximity, he sees how the country is better located to take advantage of the relocation of companies to bring the supply of the productive chains closer, the so-called nearshoring.

He qualified that Mexico is competing with other economies in Latin America and Asia, such as Malaysia, Singapore and Thailand, so it would be relevant to address the infrastructure challenge to provide more businesses.

Mexico stands out from the rest of the emerging countries, he said, because it has maintained its investment grade, it did not borrow like others and therefore it does not have a debt sustainability problem. This has helped capital flow.

Finally, he highlighted the importance of understanding the economy of the countries for decision-making.

ymorales@eleconomista.com.mx