MEXICO CITY (Reuters) – Mexico’s central bank will likely cut its benchmark interest rate by 50 basis points later this week, taking it to 9.50%, a Reuters poll showed on Wednesday, as inflation cools and the economy notched a slight contraction late last year.
According to the poll, 14 of 17 economists surveyed expect the central bank to deliver the 50-basis-point cut, which would follow five 25-basis-point cuts last year. The other three economists forecast a 25-basis-point cut this week.
The central bank’s policymaking board lowered the benchmark rate to 10.00% in a unanimous vote in December.
Annual inflation in Latin America’s second-biggest economy slowed to its lowest level in almost four years in the first half of January, a price level that is seen as encouraging Mexican central bankers to keep cutting rates.
The 12-month headline inflation reading came in at 3.69% during the first two weeks of January, its lowest level since early 2021 and falling within the bank’s target of 3%, plus or minus one percentage point.
In 2022, the rate of rising consumer prices hit a two-decade high at above 8%.
The prospect of a rate cut this week also was boosted by data showing Mexico’s economy contracted by 0.6% in the fourth quarter, marking its first quarter-on-quarter contraction in more than three years.
If the central bank announces a 50-basis-point cut, the interest rate would be at its lowest level since September 2022 and narrow the gap between borrowing costs in Mexico and the U.S.
Last week, the U.S. Federal Reserve held its benchmark interest rate steady in the 4.25%-4.50% range and indicated it was in no rush to cut again until U.S. inflation and jobs data warranted it.
The Bank of Mexico, known locally as Banxico, is set to publish its interest rate decision at 1 p.m. local time (1900 GMT) on Thursday in its first monetary policy decision of the year.
(Reporting by Noe Torres; Additional reporting by Gabriel Burin; Editing by Paul Simao)
