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Free AccessGoldman Sachs See Banxico On Hold This Week, With Risk Of 25bp Cut
- Given the recent domestic and external macro-financial developments, Goldman Sachs expect the MPC to hold the policy rate at 11.00%. They assess a 25-30% probability of a 25bp rate cut in a 3-2 split decision. The probability of a cut would go up in the case of a significant mean-reversion of the post-election MXN depreciation ahead of Thursday’s meeting.
- The MXN dislocation of the last couple of weeks may lead to further deterioration of inflation expectations, and MXN depreciation was one of the upside risks to inflation identified by the MPC at the last meeting. However, GS highlight that the recent depreciation shifted the MXN/USD from over-valuation to broad alignment with theoretical fair-value. The MPC should also take into consideration that the post-election backdrop remains volatile, and the US election cycle is looming large.
- All in, were it not for the increase in risk-premia post-election GS would expect a 25bp cut, but the recent developments and heightened near-term uncertainty demand caution: a cut could potentially further destabilise the MXN. The MPC may combine a hold decision with Forward Guidance that suggests a reasonable probability of a cut at the August 8 meeting.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.