Mexico’s GDP and inflation numbers support bets for a September interest rate cut by Reuters

By Gabriel Araujo

(Reuters) – Mexico’s statistics agency INEGI released a series of data on Thursday showing inflation slowed more than expected while growth remained tepid, opening the door for the country’s central bank to cut another interest rate next month .

The Bank of Mexico (Banxico) cut its benchmark interest rate to 10.75% from 11% in a split vote in early August, despite higher forecasts for year-end headline inflation, and strengthened its Thursday the view that new policy adjustments are on the table. .

Another rate cut when policymakers meet again on September 26 is now seen as more likely, especially after INEGI reported that annual inflation beat market forecasts in its mid-August print, easing more than expected.

In Latin America’s second-largest economy, 12-month headline inflation came in at 5.16 percent in the first half of August, down from 5.61 percent a month earlier and below the forecast of 5, 31% of economists polled by Reuters. This is still well above the bank’s 3% inflation target, plus or minus 1 percentage point.

The closely watched core consumer price index – seen as a better gauge of price trends because it strips out volatile energy and food prices – continued to decline, with the annual reading falling below 4% for the first time since early 2021.

“Was Mexico’s August Interest Rate Cut Justified? The bi-weekly below-consensus headline and core CPI say yes,” said VanEck Chief Emerging Markets Economist Natalia Gurushina.

“However, further disinflation and substantial fiscal consolidation are essential to avoid the perception of being ahead of the curve.”

Two members of Banxico’s five-member board spoke out against the recent interest rate cut, saying the move undermines the central bank’s credibility as the bank raised its forecast for year-end headline inflation to 4, 4%, from 4.0% previously.

But if the moderation in consumer prices is confirmed in the second half of August, analysts at CIBanco said in a note to clients, the possibility of another cut by Banxico at its next meeting increases.

TEMPERATURE GROWTH

Weak economic activity could provide additional support to more accommodative board members.

INEGI data on Thursday showed that Mexico’s gross domestic product (GDP) rose 0.2 percent in the second quarter from the previous three-month period, in line with market expectations but reinforcing a slowing trend seen since late last year.

In annual terms, growth in the April-June quarter was 2.1 percent, while economists polled by Reuters and a preliminary estimate published by INEGI last month pointed to a 2.2 percent expansion.

Banorte economists said the Mexican economy faces “relevant challenges” in the second half of the year. There could be some positives, they added, but acknowledged there were downside risks to their own forecast of 1.9% annual GDP growth.

Economic activity in June, INEGI added in a separate report, was unchanged from the previous month and fell by 0.6% annually – both below consensus.

“The mid-August CPI print, along with weak activity data for June and the Fed’s confirmation that it will begin its easing cycle next month means we expect Banxico to cut its policy rate by another 25 basis points in September”, Capital. Economics economist Kimberley Sperrfechter said.