“The magnitude of the increases has relaxed, the end of the bullish cycle is near”

This Thursday the Bank of Mexico (Banxico) increased its reference interest rate by 25 basis points and with this the bullish cycle is very close to ending, however, the risks are still present, according to analysts consulted by El Economista.

Humberto Calzada, chief economist for Latin America at Rankia, commented that although the increase in the rate continued, “the tone is slightly less aggressive” and specified that it was the smallest increase since November 2021, since it is due to the fact that inflation is subsiding. .

“From our perspective, the interest rate could close the year between 11.50 and 11.75%, although it will depend on conditions. The position of the Mexican central bank is accommodative and they also gave us many hints of what would come in the next meeting, ”he said.

He commented that if inflation continues to slow down, Banco de México would increase another 25 basis points to its interest rate. “We think they will continue to raise the rate, but at a slower pace (…) we could see a couple of increases of a quarter of a percentage point each.”

Víctor Gómez Ayala, professor of economics at the Autonomous Technological Institute of Mexico (ITAM), expects the central bank’s Governing Board to increase the rate by 25 basis points, at most, in the next two meetings.

Gómez Ayala explained that what would change the magnitude of the increases would be a surprise inflationary pressure or that the risk of recession increases and with this the end of the rate hike cycle is anticipated.

An analysis by the Valmex brokerage house predicts that there will be another increase of 25 basis points in the rate on May 18 to settle at 11.50 percent. This level could be the end of the bullish cycle, although everything will depend on the evolution of the data.

Banxico more open

For its part, an analysis by the Ve por Más (Bx+) bank pointed out that Banxico’s future guidance was more open than in February, since the Governing Board revealed that it will make its next decision based on the inflationary outlook, considering the monetary stance already reached.

Bx+ explained that only if inflation slows down as expected, the Federal Reserve (Fed) of the United States (EU) soon concludes its monetary tightening process and the exchange rate evolves favourably, they would not anticipate further adjustments in the reference rate of the Mexican central bank.

“However, we recognize that there is a high risk that inflation will show more reluctance to come down locally and globally, which would put further pressure on interest rate levels,” they noted.

New latent risk

At the same time, Víctor Gómez Ayala said that now Banxico had to incorporate in the balance of its monetary decision the change in tone of the Federal Reserve that is due to the banking risks that can arise in the United States.

What happens in the US could affect the Mexican economy indirectly through a slowdown in that country, which would affect the Fed’s stance and therefore change the tone of monetary policy globally, said Gómez Ayala.

santiago.renteria@eleconomista.mx