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MEXICO: Deutsche Bank Sees 25bp Banxico Cut Tomorrow

MEXICO
EM BulletMexicoBulletEmerging Market NewsNorth America
  • Deutsche Bank is maintaining an out-of-consensus expectation that Banxico will lower the policy rate by 25bp to 9.75% at Thursday’s MPC meeting. Given the persistent external risks, with substantial downside implications for the economy, they firmly believe that a 25bp cut represents a more prudent choice in the current environment.
  • While the pause of the tariff threat has provided a reprieve, risks of a substantial external negative shock to the economy remain latent. In their view, the tariff threat will remain outstanding for some time. Even if the pause in the imposition of tariffs is extended further, DB believes that the Trump government is unlikely to give up a device that has proven its effectiveness in spurring other governments to undertake actions in the administration’s preferred direction.
  • Nonetheless, they acknowledge that risks are heavily tilted towards the validation of market expectations for a 50bp cut. On this, they note the current tight monetary stance, progress on disinflation, continued softening of activity and the dovish bias expressed by a majority in the Board. The MXN’s retracement to similar levels observed prior to Trump’s tariff announcement last week also skew risks towards a larger move.
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  • Deutsche Bank is maintaining an out-of-consensus expectation that Banxico will lower the policy rate by 25bp to 9.75% at Thursday’s MPC meeting. Given the persistent external risks, with substantial downside implications for the economy, they firmly believe that a 25bp cut represents a more prudent choice in the current environment.
  • While the pause of the tariff threat has provided a reprieve, risks of a substantial external negative shock to the economy remain latent. In their view, the tariff threat will remain outstanding for some time. Even if the pause in the imposition of tariffs is extended further, DB believes that the Trump government is unlikely to give up a device that has proven its effectiveness in spurring other governments to undertake actions in the administration’s preferred direction.
  • Nonetheless, they acknowledge that risks are heavily tilted towards the validation of market expectations for a 50bp cut. On this, they note the current tight monetary stance, progress on disinflation, continued softening of activity and the dovish bias expressed by a majority in the Board. The MXN’s retracement to similar levels observed prior to Trump’s tariff announcement last week also skew risks towards a larger move.