The central bank raised the reference rate by 25 base points, to the level of 11.25%.

The Bank of Mexico (Banxico) raised the interest rate by 25 points to 11.25 percent, in a unanimous decision, and revised the inflation forecasts for this year slightly downwards, given the favorable performance recently recorded.

For analysts, the tone of the statement was less restrictive, and for some the future guidance left the door open for a pause in the bullish cycle, but others consider that one or two more adjustments will be necessary, which will depend on the evolution in consumer prices.

“The Governing Board will make its next decision based on the inflationary outlook, considering the monetary position already achieved,” the monetary authority said in its statement.

The message contrasted with the February statement, when it indicated that given the monetary stance reached and based on the data, the increase in the rate at the March meeting would be of a lesser magnitude, as it actually happened.

For Carlos Gonzalez, director of analysis and strategy of Grupo Financiero Monex, Banxico‘s announcement is being taken as an indication that the members of the Governing Board could be considering that the terminal interest rate has already been reached and that going forward will depend the behavior of inflation.

“It seems to us that he could be leaving open the possibility that the reference rate has already reached maximum levels and we expect this rate to remain in place for the remainder of the year and we no longer expect an additional adjustment,” he told El Financiero Bloomberg.

Andres Abadia, chief economist at Pantheon Macroeconomics, agreed that this is probably the end of the tightening cycle. “Overall, the decision is neutral, but I think this is the end of the tightening cycle, as inflation is likely to continue to decline for the next three to six months,” he said. Going forward, he added, Banxico is likely to be able to relax at the end of the third quarter, as the Board is likely to become increasingly convinced that the downward trend in inflation will continue.

Less inflationary pressures

The central bank highlighted that since the last monetary policy meeting, annual headline inflation has decreased more than expected, due to the evolution of the non-core component, while core inflation has adjusted downward gradually.

It estimated that average inflation in the first quarter of this year will be 7.5 percent annually, below the 7.7 percent of the previous estimate, and for the second quarter it lowered its forecast to 6.3 percent, from 6.4 percent.

For the third quarter it maintained its projection at 5.3 percent, and for the fourth it slightly lowered it from 4.9 to 4.8 percent.

Among the upward risks for inflation, he mentioned the persistence of the core index, exchange rate depreciation due to international financial volatility and pressures on costs and energy.

Priscila Robledo, chief economist at Fintual, also said that Banxico gave signs that the cycle of increases would have come to an end, but also left the door open to raise again if necessary.t

“From now on, the market will probably focus its attention on identifying the timing of the start of rate cuts. We believe that towards the end of the year some space for cuts could open up, although this will depend on the evolution of local inflation and global financial conditions”, she indicated.

Expect rise in May

Despite less concern about inflation, some analysts expect another 25-point adjustment in the reference rate in May, to 11.5 percent. This is what economists from Banorte, Cial Insights, Valmex, Goldman Sachs, BNP Paribas, Banco Base and Finamex, among others, predict.

“In the statement there is an important change in the future guidance, we went from seeing a bank that claimed to continue raising the rate to a message in which they leave the door to two options: to an option in which they will no longer raise rates and to another where these increases could continue if necessary”, said Pamela Díaz Loubet, economist for Mexico at BNP Paribas, noting that an increase of more than 25 basis points is expected in her scenario.

Jessica Roldan, chief economist at Finamex Casa de Bolsa, said that the future guidance was more open, and in combination with other elements, could suggest that Banxico ended the rate hike cycle with this decision. However, she noted that another 25-point rate increase is expected.