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MEXICO: Deutsche Bank Sees Further 100bp Cuts This Year, Remains Cautious MXN

MEXICO
EM BulletMexicoBulletEmerging Market NewsNorth America
  • Banxico’s 50bp cut yesterday and the dovish forward guidance came in against Deutsche Bank’s view that heightened external risks warranted a more cautious approach. While the Board acknowledged these risks, they deem that their crystallisation would generate two-sided pressures to the inflation outlook, thereby enabling Banxico to weigh more heavily the softening of economic activity.
  • DB revise their projected path for the policy rate, now envisioning an additional 100bp in cuts for this year, delivered via a 50bp cut in March and 25bp cuts in May and June. They see this being followed by a pause through H1 2026 upon the resumption of Fed cuts and pencil in the policy rate closing this and next year at 8.5% and 7.5%, respectively.
  • DB remain cautious MXN on the back of a slower economy, more rate cuts and lower remittances amid endemic tensions. They expect it to trade rangebound around 20.5-21 with possible spikes as more noise emerges from policy changes in the US. In rates, they see additional (although reduced) room for yield compression in Mexico vs US and position more cautiously via spread compression (MBono vs. TIIE) in the 10Y sector.
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  • Banxico’s 50bp cut yesterday and the dovish forward guidance came in against Deutsche Bank’s view that heightened external risks warranted a more cautious approach. While the Board acknowledged these risks, they deem that their crystallisation would generate two-sided pressures to the inflation outlook, thereby enabling Banxico to weigh more heavily the softening of economic activity.
  • DB revise their projected path for the policy rate, now envisioning an additional 100bp in cuts for this year, delivered via a 50bp cut in March and 25bp cuts in May and June. They see this being followed by a pause through H1 2026 upon the resumption of Fed cuts and pencil in the policy rate closing this and next year at 8.5% and 7.5%, respectively.
  • DB remain cautious MXN on the back of a slower economy, more rate cuts and lower remittances amid endemic tensions. They expect it to trade rangebound around 20.5-21 with possible spikes as more noise emerges from policy changes in the US. In rates, they see additional (although reduced) room for yield compression in Mexico vs US and position more cautiously via spread compression (MBono vs. TIIE) in the 10Y sector.