Fynsa
At the first Monetary Policy Meeting of the year, the Central Bank cut the TPM by 100 basis points, from 8.25% to 7.25%. Although the market had anticipated the decision, there was some variation in projections—not only regarding the magnitude of the cut but also regarding what it might signal for future meetings.
This slightly accelerates the pace compared to the previous meeting, but it comes against a backdrop in which the latest inflation data came in much lower than expected and the next meeting will not take place until early April, followed by an IPoM the next day. Moreover, the decision was not unanimous, as Board Member Céspedes voted for a 125-basis-point cut, an option that was also considered a likely possibility in analysts’ discussions.
In our current analysis, we would say that international economic data has been in line with estimates, although expectations regarding the interest rate differential have once again triggered a significant depreciation of the peso. It is interesting to note that, despite this, the measures taken this time are completely different from those implemented in October of last year.
At the local level, despite the fact that the statements made by Councilor Naudón at a seminar were initially downplayed, the press release mentions exactly what he said on that occasion: Total inflation is expected to converge toward the target sooner than expected, causing the MPR to reach neutrality during the second half of the year. This is 325 basis points below the current level. Will there be 4 cuts (3 of 100 basis points and one of 25 basis points) or 5 (2 of 100 basis points, 2 of 50 basis points, and one of 25 basis points)? We would be looking at July or September, then. In any case, if the data supports it, this process could be faster, accelerating the cuts to the 125 bp suggested by Céspedes, with a combination that would allow the target to be reached in June, just in time for that month’s IPoM.
Although the recent Imacec data—which, quite unexpectedly, fell 1.0% year-over-year—could support this latter option, we believe it would be premature to view this data as a permanent trend, given that previous figures did not follow the same pattern. Thus, it will be vital to monitor upcoming data to assess the need to accelerate the process and, perhaps, project rate cuts that go beyond 4.00%. For now, this remains merely a risk scenario.
