In a highly anticipated event, Banxico meets today to set the monetary policy rate. The vast majority of economists favor a 25 bp rate cut, bringing the policy rate to 10.50%. However, financial markets price in a 50% chance of a 50 bp rate cut.
50% chance of a 50 bp rate cut
“The idea here is that Banxico, like the Fed, could engage in a large precautionary cut now that it has shifted its focus from inflation to growth concerns. Moreover, some see this as a window of opportunity for a large cut before the US election, and an uncertain future for trade policy closes the window for such a large reduction later this year.”
“At the same time, the peso remains vulnerable to political history. After securing judicial reforms, the government is trying to push a large minimum wage increase through Congress. As for the former, rating agency Moody’s is now saying that constitutional reforms could directly impact Mexico’s sovereign credit rating. Moody’s currently has Mexico at Baa2, (S&P at BBB) and Mexico’s five-year CDS at 120 bps is already pricing in a one-notch downgrade.”
“We think Banxico could risk a 50bp rate cut today to quickly ease high real rates. However, the peso would suffer and our near-term bias for USD/MXN is 19.75 and above 20.00 if a 50bp cut is realized today.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
