The Bank of Mexico (Banxico) will hold its regular meeting tonight (European time). At the moment, all signs point to another 25 bp cut to 10.5%. This is supported by the fact that Banxico, with its latest rate cut in early August, has already made it clear that the focus of monetary policymakers has changed in recent months. The focus is now much more on the weakening real economy, while inflation, which remains very persistent, seems to be taking a backseat, notes Michael Pfister, FX analyst at Commerzbank.
Banxico is likely to cut rates by 25 bps today
“This is also supported by the fact that Banxico went ahead with the rate cut despite the Mexican peso having depreciated significantly in recent weeks, pointing to higher imported inflationary pressures in the coming months. Recent statements by officials also leave little doubt that they will continue their monetary easing today.”
“With real interest rates still quite high and other central banks considering increasing the pace of quantitative easing, one might wonder whether Banxico will also start cutting rates by 50 basis points. However, this seems unlikely, at least for the moment.”
“The reasons for this are the aforementioned persistent inflation, but also the fact that real economy data, while pointing to a slowdown, do not point to a significant economic recession. In short, Banxico is likely to cut rates by another 25 basis points today.”
Source: Fx Street
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