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Itaú Expect Banxico To Pause Next Week, Still See 10.0% Year-End Rate

MEXICO
  • While the latest monetary policy statement and the corresponding minutes suggested a rate cut in the June 27 policy meeting, recent developments have led Itaú to change their call to another pause at 11.00% next week. Itaú think that board members that were open for a rate cut in June are likely to pause to avoid further volatility in USDMXN amid elevated policy uncertainty.
  • Governor Rodriguez, among the members open for a rate cut, expressed caution in the recent episodes of currency volatility, noting that they were ready to intervene in periods of extreme volatility. In Itaú’s view, these board members are likely to give greater weight to financial stability concerns in the current market backdrop, at the expense of keeping the policy rate unchanged for a second consecutive meeting, considering the highly restrictive stance relative to the smaller inflationary gap.
  • Looking ahead, Itaú think Banxico is likely to resume the easing cycle in subsequent meetings given the highly restrictive monetary policy stance, the pace of the ongoing disinflationary process and start of the Fed’s easing cycle. Their change in call for a further pause, rather than a 25bp cut, is a tactical recalibration in the cycle, not a change in the overall gradual easing stance. Their year-end policy rate forecast still stands at 10.00%, but with the risk of another pause.
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