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Itaú Raise Year-End Policy Rate Forecast To 9.75%

MEXICO
  • Ahead of the June Presidential election, Itaú note the strength of fiscal spending, which reflects a front-loading of social programs and fixed capital expenditure. Despite this, as well as resilient activity in the US, monthly GDP for Mexico at the beginning of the year has been weak. Itaú’s 2024 GDP growth forecast of 2.8% has a downside bias.
  • Meanwhile, Itaú note that Banxico’s forward guidance suggests that further rate cuts will be data dependent. Although further declines in core inflation amid soft activity at the beginning of the year support the continuation of the easing cycle in May, they have changed their call for a pause next month, given Fed repricing pointing to a delay in the beginning of the US easing cycle. Their end of year policy rate forecast now stands at 9.75% (vs. 9.50% previously).
  • Itaú have also reduced their end-of-year 2024 USDMXN forecast to 17.9 (previously 18.2), given a stronger-than-expected evolution of the peso and despite the strengthening of the USD globally. On the fiscal front, they have increased their 2024 deficit estimate to 5.0% of GDP (from 4.9%), given the strong fiscal-expenditure execution at the beginning of the year. They have also raised their 2025 deficit forecast to 2.5% of GDP (from 2.2%), in line with the new MoF estimates.

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