Mexico | Easing cycle will continue, but Banxico will remain cautious

Summary

Yet, we continue to expect Banxico to cut the policy rate until it reaches c. 0% real levels by year-end ie, 3.0% to 3.5%. The Board’s concerns on the ER should have eased in the intermeeting period.

Key points

• Key points:
• Banxico will likely cut the policy rate by 50bp to 5.0%; forward guidance is unlikely
• The central bank likely continues more focused on the exchange rate and capital flows than on inflation and economic activity, but concerns should have eased in the intermeeting period
• The most significant change in the intermeeting period is that the growth outlook worsened further; risks of higher inflation continue to be extremely low while ER-related risks eased
• It seems that the majority of the Board thinks there is tradeoff between an appropriate monetary policy stance in the current context of inflation and economic growth and the peso and financial stability
• This clearly signals that Banxico will remain cautious and will continue to implement hawkish cuts in the next meetings

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