Banxico: Inflation risks complicate rate-cut path – Rabobank

Rabobank strategists Molly Schwartz and Christian Lawrence preview the March 26 Banxico meeting, expecting the overnight policy rate to be held at 7.00%. They note rising inflation risks linked to the Iran war and internal Board divisions between inflation hawks and growth doves. They still project two 25bp cuts starting in June, but see risks skewed toward fewer and later cuts.

Inflation pressures delay easing cycle

"We expect Banxico to hold the overnight policy rate at 7.00% at the March 26 decision."

"At the most recent meeting, we saw the Board of Governors highlight concerns about the persistence of inflation. We expect these concerns to come further into focus given elevated prices due to the Iran war."

"While there are some measures to insulate Mexico from the effects of inflation from the war, inflation is still likely to increase. On the other hand, the concerns of some of the more dovish members of the Board regarding a deteriorating economic outlook may put the Bank in a tough position."

"We are still forecasting two 25bp cuts from Banxico this year, starting at the June meeting. The risk to our view is skewed in favor of fewer cuts starting later in the year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)