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Barclays Expect Banxico To Mirror The Fed One Last Time

  • Barclays continue to expect Banxico to mirror the Fed one last time. Barclays then expect Banxico effectively to decouple from the Fed and keep the rate unchanged for some time to “allow monetary tightening to act on inflation.” In fact, we believe this could be the board’s “catch phrase” to provide forward guidance to market participants.
  • Shifting gears to the next cycle, Barclays believe Banxico will be unable to cut rates until November; while Barclays expect inflation to trend downwards, they think it will be a very gradual process. Current expectations are for 12-month headline inflation to end this year at 5.7% (consensus: 5.1%) and core at 5.3% (5.1%).
  • However, ex-ante real rates will likely be so high by then, with inflation expectations for YE 24 at about 3.5%, that Banxico might be able to cut rates (25bp in November and December), almost regardless of whether the Fed cuts this year, in order to adjust its monetary policy stance to a more “neutral” territory.
  • Barclays still expect Banxico to continue to ease monetary policy in 2024, gradually taking the reference rate towards 7.50%.

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