📊 Q3 Earnings are here! Plan ahead with key data on upcoming stock reports - all in 1 placeSee list

Mexico, Brazil inflation reports send contrasting monetary policy messages

Published 10/09/2024, 09:53 AM
Updated 10/09/2024, 09:55 AM
© Reuters. FILE PHOTO: A man pays a vendor at a fruit stand, at a supply centre (CEASA) in Brasilia, Brazil May 9, 2023. REUTERS/Adriano Machado/File Photo

By Gabriel Araujo

SAO PAULO (Reuters) - Inflation figures released on Wednesday painted opposite scenarios for Latin America's two largest economies, indicating that Brazil will keep tightening its monetary policy to combat rising prices while Mexico brings its interest rate down.

The annual headline inflation figures in the two countries did not differ that much from each other, but their price trends diverged and should keep monetary policy in the emerging country peers moving in different directions.

In Brazil, annual inflation accelerated in September to 4.42%, in line with market expectations but above the 4.24% reported in the previous month, closing in on the upper limit of the central bank's target range.

Policymakers in the country have vowed to bring inflation back to their 3% target, which has a tolerance margin of plus or minus 1.5 percentage points, meaning they will likely hike interest rates again at their next meeting in November.

The rate-setting committee, known as Copom, had already voted unanimously to embark on a tightening cycle last month, raising borrowing costs by 25 basis points to 10.75% amid inflationary pressures and strong economic activity.

"September's inflation figures will only add to the hawkish mood at the central bank as Copom seeks to shore up its credibility amid concerns about the politicization of monetary policy," Capital Economics economist Jason Tuvey said.

Higher electricity and food prices amid a major drought have weighed on Brazil's inflation index.

In Mexico, meanwhile, 12-month headline inflation slowed to 4.58% in September from 4.99% in the previous month, still well above the 3% target but maintaining a downward trend that has allowed the Bank of Mexico (Banxico) to lower borrowing costs.

Policymakers in Latin America's second-largest economy delivered rate cuts three times this year, including a 25-basis-point reduction last month that brought the benchmark rate down to 10.50%.

"This is a good inflation report and supports the case for further monetary policy easing," Pantheon Macroeconomics' Andres Abadia said. "Underlying inflation pressures continue to ease, and we expect a continued decline in inflation during Q4."

Polls of private economists in each country underscore how Brazil's and Mexico's monetary policies diverge at the moment.

While in Brazil they show interest rates are likely to end this year at 11.75%, implying 50-basis-point hikes at each of the central bank's two remaining 2024 meetings, in Mexico they indicate two cuts of 25 basis points to 10% by year-end.

Banxico governor Victoria Rodriguez acknowledged the bank's governing board may even consider larger cuts going forward, as inflation cools.

However, the easing policy has caused a rift in the board, with some governors calling to hold rates until a clearer downward trend is seen across their price indicators.

By end-2025, the polls suggest, Brazil's rate would be brought down a little to 10.75%, while in Mexico they might dip to 8%.

© Reuters. FILE PHOTO: A man pays a vendor at a fruit stand, at a supply centre (CEASA) in Brasilia, Brazil May 9, 2023. REUTERS/Adriano Machado/File Photo

Brazil's economy has surprised to the upside and should grow around 3% this year, while Mexico's gross domestic product growth is seen at half that by analysts, also a factor policymakers take into account.

"We expect further increases to the Selic to 12% by early 2025," Capital's Tuvey said about Brazil, while adding that in Mexico the inflation report "supports our view that Banxico will cut rates by 25bp at each of the remaining meetings this year."

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.