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MEXICO: Barclays Sees Room For Market To Price Larger Banxico Rate Cuts

MEXICO
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  • Barclays thinks Banxico will cut the reference rate by 25bp tomorrow and at all remaining monetary policy meetings this year. Further ahead, they believe that it could increase the pace to 50bp, to reach 7.50% before end-2025. However, the risk to their call is that Banxico might be able to increase the pace of cuts as early as November, as the Fed's 50bp cut last week could provide an opportunity for Banxico to do the same.
  • Barclays sees some possibility of a more dovish scenario tomorrow, in which a dissenter supports a larger 50bp cut and the statement opens the door for a larger move later in the year. Thus, board members could substitute the word 'gradual' with 'forceful', for example, to pave the way for 50bp cuts at upcoming meetings if conditions allow.
  • In such a case, the market would likely take the stronger signal that an acceleration is in the pipeline. Barclays sees room for the market to price in larger cuts and stay received 2y TIIE. In FX, they remain on the sidelines, as the US election remains a hurdle, a more dovish Banxico could fuel expectations of a faster carry erosion, and concerns about US growth are unlikely to dissipate entirely.
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  • Barclays thinks Banxico will cut the reference rate by 25bp tomorrow and at all remaining monetary policy meetings this year. Further ahead, they believe that it could increase the pace to 50bp, to reach 7.50% before end-2025. However, the risk to their call is that Banxico might be able to increase the pace of cuts as early as November, as the Fed's 50bp cut last week could provide an opportunity for Banxico to do the same.
  • Barclays sees some possibility of a more dovish scenario tomorrow, in which a dissenter supports a larger 50bp cut and the statement opens the door for a larger move later in the year. Thus, board members could substitute the word 'gradual' with 'forceful', for example, to pave the way for 50bp cuts at upcoming meetings if conditions allow.
  • In such a case, the market would likely take the stronger signal that an acceleration is in the pipeline. Barclays sees room for the market to price in larger cuts and stay received 2y TIIE. In FX, they remain on the sidelines, as the US election remains a hurdle, a more dovish Banxico could fuel expectations of a faster carry erosion, and concerns about US growth are unlikely to dissipate entirely.