Mexico's gross domestic product (GDP) showed strength in 2023, growing 3.1% year-on-year. But data published this Tuesday by the National Institute of Geography and Statistics (Inegi) show a slowdown in the last quarter. This may put pressure on the Central Bank's Board of Directors, which defines the reference interest rate in the financial system as a tool to contain inflation. The current interest rate of 11.25% is the highest since monetary policy was introduced in Mexico.
National GDP fell by 0.1% in the last quarter of 2023 compared to the previous quarter. Meanwhile, inflation rose, according to the consumer price index, which rose 4.5% in December. This creates a complicated picture for the Bank of Mexico, which has kept interest rates at record levels to curb inflation, but now that decision could have an impact on economic growth.
“The sharp slowdown increases the chances of a Banxico cut next week,” Jasontuvoy, an emerging market economist at Capital Economics in England, wrote in a report on Tuesday. Porquey points to the Bank of Mexico's monetary policy decision scheduled for February 8th. “Before the data release on Tuesday, we assumed there was a 50-50 chance of a rate cut in February. If the Fed takes a more dovish tone at the Federal Reserve meeting, that could be enough for Banxico to pull the trigger.”
The Board of Directors of the Bank of Mexico acted initially in advance of the US Federal Reserve's decisions and later with a certain synchronicity. Mexico's central bank began raising interest rates before the Fed did so in the United States and has kept them significantly higher since 2021. This has created an attractive differential through which foreign investors have purchased instruments in Mexican pesos. Now the Federal Reserve is also considering the possibility of cutting its own interest rate so that its counterparts in Mexico could do the same without triggering a sudden outflow of capital.
“We expect growth in Mexico to remain slow in the coming quarters,” Tuvoy wrote. “The restrictive monetary policy will impact credit growth. “Investments that were an important support for growth last year will become a liability when important transport infrastructure projects such as the Maya Train are completed,” he added, referring to President Andrés Manuel López's emblematic projects. Obrador.
Both Capital Economics and others expect a slowdown in the U.S. that would impact Mexico through exports, remittances and tourism. The International Monetary Fund (IMF) raised its economic growth estimate for Mexico to 2.7% this year, which would represent a slowdown compared to 2023.
“There is a greater likelihood that Banxico could gradually ease its hawkish stance, possibly starting with a 25 basis point cut at the March meeting,” wrote analysts at Bogota-based CrediCorp Capital. “However, the year-end level of the reference interest rate in 2024 remains uncertain, depending on the evolution of inflation risks and external interest rates,” the company warned.
Subscribe here Subscribe to the EL PAÍS México newsletter and receive all the important information on current events in this country
Subscribe to continue reading
Read without limits
_