MEXICO CITY, Sept 24 (Reuters) - Analysts are betting that Mexico’s central bank will cut its key interest rate as much as three times during the remainder of 2019 after data showed inflation dipping below the bank’s own 3% target for the first time in three years.
A Reuters poll on Monday found that 14 of 16 analysts and economists expect the Bank of Mexico, known locally as Banxico, to lower the key lending rate to 7.75% on Thursday. In mid August, the bank cut rates for the first time since June 2014.
Mexico’s annual inflation eased to 2.99% in the first half of September, below expectations and the lowest level since September 2016, data from the national statistics agency showed earlier on Tuesday.
With this data in hand, analysts and investors now increasingly expect Banxico to cut the rate by a quarter of a percentage point at Thursday’s monetary policy meeting, followed by further cuts at the bank’s meetings on Nov. 14 and Dec. 19.
That would bring the key rate to 7.25%, in what would be the lowest level since December 2017.
Alberto Ramos, head of Latin America research at Goldman Sachs, is among those who forecast another 25 basis points rate cut on Thursday and “at least two 25 basis points rate cuts before the end of the year.”
Mexico’s economy barely escaped a recession in the first half of the year, posting no growth in the second quarter and contracting in the first.
The derivatives market also points to three more rate cuts, experts say.
“The yield curve discounts 79 basis points of implicit cuts for the remainder of the year, attributing a 100% probability of decreases of 25 basis points in each of the remaining meetings in 2019,” said Alejandro Padilla, director of strategy in fixed income and exchange rate at Banorte.
Both Ramos and Padilla have upped their bets for additional rate cuts as inflation has cooled more quickly than anticipated.
Banxico’s expected rate cut would fall in line with the U.S. Federal Reserve’s recent rate reduction. (Reporting by Abraham González; Writing by Anthony Esposito; Editing by Andrea Ricci)