Central Bank Policies

RBA Announcement (Tue):

The RBA is likely to keep the Cash Rate Target unchanged at 4.35% at its meeting next week with all 45 economists surveyed by Reuters unanimously forecasting no change in rates, while money markets are pricing in around a 92% probability for no adjustment in rates and just under an 8% chance of a 25bps cut. As a reminder, the central bank refrained from any policy adjustments at the last meeting in August and stuck to a hawkish tone in which it noted that the Board remains resolute in its determination to return inflation to the target and is not ruling anything in or out, while it reiterated that inflation remains above target and is proving persistent. Furthermore, the central bank said policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range, and it raised its view for GDP, CPI and the Unemployment Rate with its forecasts assuming the cash rate will be 4.3% in December 2024, 3.6% in December 2025, and 3.3% in December 2026. RBA Governor Bullock also provided a hawkish tone at the post-meeting press conference where she stated that the board considered a rate increase and that a cut is not on the near-term agenda, as well as commented that they are ready to raise rates if needed and that the pricing of cuts for the next six months does not align with the board. The minutes from the meeting also noted that it is possible the Cash Rate would have to stay steady for an extended period and members agreed it is unlikely rates would be cut in the short term. The rhetoric from officials since then continued to support the case for a pause as Governor Bullock repeated that it is premature to be thinking about rate cuts and the board does not expect to be in a position to cut rates in the near term with bringing inflation down remaining the central bank's highest priority, while she stated that they need to see results on inflation before lowering rates and that the board is not going to focus on one inflation number. This suggests the central bank is far from cutting rates, especially given that the latest monthly inflation data for July topped estimates and remained above the central bank's 2%-3% target with Weighted CPI YY at 3.5% vs. Exp. 3.4% (Prev. 3.8%).

Banxico Announcement (Thu):

Mexico's central bank cut rates by 25bps to 10.75% at the last meeting, where analyst expectations were split between a cut and a hold. The decision was not unanimous however with three out of the five Banxico members (namely Governor Victoria Rodríguez, Galia Borja, and Omar Mejía) supporting the decision, while the remaining two (Irene Espinosa and Jonathan Heath) wanted to hold rates at 11%. The meeting saw 2024 year-end headline inflation forecasts rise from 4.0% to 4.4%, while its core projection was left unchanged at 3.9%. The language within the statement was largely reiterated, with the central bank maintaining its view that "looking ahead, the Board foresees that the inflationary environment may allow for discussing reference rate adjustments." Since then, recent data has seen the August inflation data cool further with core easing to 4.0%, the top end of Banxico's target range. Meanwhile, activity gauges have been soft, leading some to question the economic momentum in Q3. Externally, the Fed delivered a bumper 50bps rate cut this week, which analysts said gives Banxico more scope to continue easing. Accordingly, many would be unsurprised by another 25bps rate cut in September. The latest Banxico private sector analyst poll saw expectations shift with the year-end rate seen at 10.25%, lower than the 10.50% in the prior poll, while the end-2025 rate is seen at 8.25% vs the prior forecast of 8.50%. However, with the recent approval of Mexico's judicial reform, Oxford Economics writes it poses a downside risk to investment and could pause policy rate easing. Nonetheless, the desk sees rates ending at 10.25%, 50bps down from current levels.