Bank of Mexico anticipates lowering interest rates

MEXICO CITY (El Universal).— After a week of intense volatility in financial markets around the world and signs of a global economic slowdown in sight, some financial analysts are beginning to assess that, given this scenario, it is possible that central banks will begin to relax interest rates.

However, others expect policymakers to remain cautious as it is not yet time to let down their guard, financial analysts said.

For the English bank Barclays, recent volatility and factors specific to each country have led central banks in Latin America and the Caribbean to be more cautious. It stated that, although most still have room to relax monetary policy, a helping hand from the United States Federal Reserve (Fed) could provide more calm in the coming months, and Brazil may be the only one left out amid its internal challenges.

In a weekly report, the U.S. economy was showing signs of slowing, with manufacturing weakening and the U.S. labor market cooling.

The Fed maintained its stance, but analysts at the institution predicted it was now likely to implement three 25 basis point cuts before the end of the year.

They noted that the US July employment report revealed widespread weakness, with a slowdown in wage employment and an increase in the unemployment rate to 4.3%.

Banorte, for its part, considered that the market is granting the Fed a sufficient disinflationary process to cut rates, which, combined with signs of economic slowdown, particularly on the employment front, is consistent with a rate cut for the next meeting on September 18.

In this context, they expect a 25 basis point cut in the decision of the Bank of Mexico (Banxico) this week, to take the interest rate to 10.75%, a probability that the market consensus gives of 50%.

Following the Fed’s decision, they said, bets on further cuts for the rest of the year increased to 81 basis points, from 58 points the previous week.

They estimated that investors will maintain a healthy appetite for Cetes given their attractive real rates, while for 10-year M Bonds they anticipated moderate demand that will probably remain below the average of the last two years.

In an analysis by TransEconomics Research, led by Genieveve Signoret and Delia Paredes, it is established that for their scenario without landing to materialize, the Fed needs to begin lowering its rate no later than September, but that this also quickly translates into a drop in mortgage rates and that the demand for new housing responds to that, since the increase in the inventory of finished homes in the US is already beginning to be a cause for concern.