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Itaú Reduces Growth Forecasts, Sees 100bp Rate Cuts To Year-End

MEXICO
  • Potential institutional deterioration and a challenging fiscal consolidation are front and centre of the Mexican economy’s outlook in the aftermath of the election. After a soft Q1, weaker-than-expected activity in April suggests that Q2 GDP is unlikely to rebound strongly. Itaú reduced their GDP growth forecast for 2024 to 1.6%, from 2.3%. A slightly weaker US outlook also dragged their activity forecast for this year.
  • Itaú revised their currency forecast for 2024 and 2025 to 18.6 pesos per US dollar (from 17.9) and 19.3 (from 18.9), respectively. While the depreciation of MXN pressures Itaú’s inflation forecast, despite low pass-through, a weaker activity outlook offsets this. Thus, their end-of-2024 and 2025 inflation forecasts remain at 4.3% and 3.9%, respectively.
  • Itaú’s base case remains for Banxico to cut its policy rate by 25bp in each of the remaining meetings of the year, reaching an end-of-year level of 10.00%. The highly restrictive monetary policy stance relative to the smaller inflationary gap allows for rate cuts, while an earlier start of the Fed’s easing cycle also supports their call. However, bouts of volatility related to post-election uncertainty risk another pause.

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