Despite calls for caution from inside and outside the central bank, the market is already pricing in more interest rate cuts for the rest of the year, moving the rate into neutral territory after three years of restrictive levels for the economy. According to surveys by Citi and Banxico, the consensus among specialists projects that a new 25-basis-point cut will be announced on November 6, with the current rate at 7.50%. This estimate is bolstered by the inflation results for the first half of October, which came in at 3.63% annually, below the 3.78% level recorded in September. Specialists are also considering the majority view within the government board led by Victoria Rodríguez, which holds that the economy remains stagnant, the currency is stronger, and inflation is within range. Inflation has surprised to the downside, dividing the market on Banxico's next move. However, the current dissident voice comes from Deputy Governor Jonathan Heath, who keeps warning about the growth of the underlying component, which marks the trend of general inflation in the short and medium term and is more susceptible to the effects of monetary policy. During the first half of October, underlying inflation saw a slight annual decrease, but it remains above the central bank's tolerance range at 4.24%, with some components even at double the estimated target. In this context, the broad-based price drop during the past half-month is mainly explained by the reduction in non-underlying inflation. Heath insists that relying on this element is not sufficient and could show a rebound in the final stretch of the year. Despite this context, the market has a greater expectation that Banxico will not halt the cuts this month, as the consensus points to the year closing with a rate of 7%, already considered neutral territory by specialists.
