Mexico | Banxico members will likely vote unanimously to pause amid political uncertainty

Banxico will most likely suggest it will proceed with caution, at least until more information is available about the judicial reform and the type of fiscal adjustment that will be implemented next year to fulfill the federal government’s commitment to reduce the public deficit by 2.9 points of GDP next year.

Key points

• Key points:
• The big but expected shift in the Fed’s dot-plot does not rule out a fed funds rate cut in Sep; we continue to think that two rate cuts this year are more likely than not.
• Regardless of the upcoming Fed’s decisions, we continue to think that Banxico has ample room to resume the rate cut cycle after the first cut back in March.
• Banxico will likely revise up its headline inflation forecasts, but has no need to change its core inflation path even with core services inflation stickiness.
• Doves will likely opt for delaying an uneasy debate with the ultra hawks and vote for a pause driven by the recent exchange rate volatility and political uncertainty.
• Board members’ forward guidance will likely continue to point to an overly restrictive stance for a longer period than warranted in our view.

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