Banxico will likely slow its easing cycle

We expect Banxico to cut the policy rate by 25bp to 4.25%. We now think that Banxico will move in 25bp steps from here until the policy rate reaches 3.0% (now in May 2021).

Key points

• Key points:
• There is scope for further rate cuts but Banxico will likely slow the easing pace
• The minutes to the last meeting show a split within the Board and a more cautious Banxico. Recent inflation levels likely reinforce the shift towards more cautiousness and might even make at least one member vote for a pause
• Inflation concerns are overdone: in spite of the current change in relative prices, there will not be any demand-side pressures in the coming quarters, giving Banxico room to further cut rates
• We continue to expect Banxico to slash rates much further than currently expected, but we now expect a slower rate cut cycle (to 3.75% by year-end). We continue to think that the policy rate will reach 3.0% (now in May 2021)

Authors

Geographies

Topics

Tags