Mexico: Banxico is likely to cut the policy rate by a further 25bp to 4.00%


We continue to think that Banxico will move in 25bp steps from here until the policy rate reaches 3.0% (in May 2021). We continue to expect that Banxico will slash rates further than currently expected, as Banxico keeps them close to 0% in real terms.

Key points

  • There is scope for further rate cuts as inflation comes down
  • In the intermeeting period inflation showed signs of stabilizing and the peso rallied
  • 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 think that the policy rate will reach 3.75% by year end and 3.0% by May 2021

 

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