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Itaú Believe Another Banxico Pause Is Likely

MEXICO
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  • Itaú note that while Banxico’s new forward guidance suggests a rate cut in the next meeting on June 27 is likely, assuming no ugly inflation surprises, the statement’s hawkish tone on the inflation environment suggests another pause cannot be discarded after June. As a result, Itaú increased their end of 2024 and 2025 policy rate forecasts to 10.00% (from 9.75%) and 8.00% (from 7.75%), respectively, also considering the increasing uncertainty of the start of the Fed’s easing cycle.
  • Meanwhile, Itaú have reduced their 2024 GDP growth forecast to 2.3%, from 2.8%, following the weaker start in economic activity, even as US growth forecasts have been revised higher. Nonetheless, they expect sequential GDP growth to improve in Q2, supported by an expansionary fiscal stance. A robust US economy will also be a support, although this will be curbed by a still strong peso. Itaú expect USDMXN to end the year at 17.9.
  • On inflation, Itaú have revised their year-end forecasts for 2024 and 2025 up to 4.3% (previously 4.2%) and 3.9% (from 3.7%) respectively, on the back of higher energy prices.
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  • Itaú note that while Banxico’s new forward guidance suggests a rate cut in the next meeting on June 27 is likely, assuming no ugly inflation surprises, the statement’s hawkish tone on the inflation environment suggests another pause cannot be discarded after June. As a result, Itaú increased their end of 2024 and 2025 policy rate forecasts to 10.00% (from 9.75%) and 8.00% (from 7.75%), respectively, also considering the increasing uncertainty of the start of the Fed’s easing cycle.
  • Meanwhile, Itaú have reduced their 2024 GDP growth forecast to 2.3%, from 2.8%, following the weaker start in economic activity, even as US growth forecasts have been revised higher. Nonetheless, they expect sequential GDP growth to improve in Q2, supported by an expansionary fiscal stance. A robust US economy will also be a support, although this will be curbed by a still strong peso. Itaú expect USDMXN to end the year at 17.9.
  • On inflation, Itaú have revised their year-end forecasts for 2024 and 2025 up to 4.3% (previously 4.2%) and 3.9% (from 3.7%) respectively, on the back of higher energy prices.