Mexico: Rising inflation in January makes Thursday’s rate decision a close call – Capital Economics

Inflation in January rose more than expected in Mexico. On Thursday, the Bank of Mexico (Banxico) will have its board meeting. Economists at Capital Economics consider that rising inflation makes an interest rate cut less likely.

Key Quotes: 

“The rise in Mexican inflation in January makes Thursday’s interest rate decision a close call, although we still think a 25bp rate cut is more likely than not. Meanwhile, the further increase in Brazilian inflation, coming alongside news that suggests further fiscal support is likely, may strengthen some of the hawkish sentiments on Copom.

“While the headline rate remains within Banxico’s 2-4% target, its upward trajectory means the central bank’s decision this week will be a very close call. We suspect there will be one more 25bp policy rate cut, to 4.00%, given the Board’s dovish tilt in December and the waning economic recovery. But the chance of additional easing has diminished, and the window for rate cuts in the months ahead is small.”