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Bank of America Say Banxico To Keep Cutting Without The Fed

MEXICO
  • Bank of America’s US economic team now expects the Fed easing cycle to start in December, instead of June, following strong non-farm payrolls and CPI prints. Banxico's policy rate is highly correlated with the US Fed rate and fewer cuts by the Fed limit Banxico's room to cut.
  • However, BofA still expect Banxico to keep cutting rates this year, as Banxico is cutting under the narrative that the real ex-ante rate is too high (above 7.0%) with respect to where neutral is (at most 3.5%), especially given that core inflation is below 5%.
  • But BofA now believe accelerating the pace to 50bp is more difficult and change their call to reflect this.
  • BofA now expect the policy rate at 9.50% by end-24 (9.25% before) and 8.00% by end-25 (7.50% before), with the risk tilted towards fewer cuts.
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