Banxico cuts 50bp to 4.50%; dovish tone suggests the easing cycle has legs

Summary

A notably dovish tone alongside a widening negative output gap backdrop points to further cuts in line with our view. • Banxico strikes again a remarkably and warranted dovish tone.

Key points

• Key points:
• The Board brushed aside the recent inflation rise (as we anticipated) and clearly signaled that inflation is not a worry for monetary policymakers, as we have been arguing
• The dovish statement along with a deep recession and a widening output gap clearly suggests further monetary policy easing
• In such a backdrop and given that inflation is not a concern, Banxico will likely find no reasons to stop easing until the policy rate reaches c. 0.0% real ex-post levels by year end
• We continue to expect a further 150bp of rate cuts in the easing cycle, taking the policy rate to 3.00% by year end ie, we are sticking with our call of 50bp cuts in the policy rate in each of the three remaining scheduled meetings in 2020
• Both consensus and market expectations will likely come down following today’s decision and accompanying dovish statement

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