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MEXICO: Commerzbank Expects Banxico To Increase Easing Pace

MEXICO
EM BulletMexicoBulletEmerging Market NewsNorth America
  • Commerzbank expects Banxico to deliver a 50bp cut to 9.50% this evening, in line with market expectations. So far, Banxico has been cautious in cutting rates, given the still very high real interest rate. However, recent decisions have indicated that the focus is now shifting from inflation, which remains slightly above target, to the weakening real economy. And after last week's first estimate of Q4 growth fell well short of expectations, the time has probably come to accelerate the rate cuts.
  • However, Commerzbank doesn’t expect the peso to suffer from this easier monetary policy stance for the time being. Firstly, the rate cut is almost fully priced, and the real interest rate will remain very high even after this move. Moreover, domestic issues have taken a back seat for the peso in recent weeks. Depending on the outcome of talks between Mexico and the US on a deal in the coming weeks, the peso is likely to move much more than in response to today's rate decision.
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  • Commerzbank expects Banxico to deliver a 50bp cut to 9.50% this evening, in line with market expectations. So far, Banxico has been cautious in cutting rates, given the still very high real interest rate. However, recent decisions have indicated that the focus is now shifting from inflation, which remains slightly above target, to the weakening real economy. And after last week's first estimate of Q4 growth fell well short of expectations, the time has probably come to accelerate the rate cuts.
  • However, Commerzbank doesn’t expect the peso to suffer from this easier monetary policy stance for the time being. Firstly, the rate cut is almost fully priced, and the real interest rate will remain very high even after this move. Moreover, domestic issues have taken a back seat for the peso in recent weeks. Depending on the outcome of talks between Mexico and the US on a deal in the coming weeks, the peso is likely to move much more than in response to today's rate decision.