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MEXICO: BBVA Say 50BP Banxico Cut Would be Sound Policy Decision

MEXICO
EM BulletMexicoBulletGlobalEmerging Market NewsRegion
  • While BBVA do expect a 25bp Banxico cut this week, they acknowledge a forceful 50bp move would be a very welcome surprise and a sound policy decision. They don’t rule out that growing evidence of a slowdown in economic activity as well as the 50bp cut by the Fed from last week could embolden the board to opt for a bigger 50bp cut. BBVA assign a 30% probability to this outcome.
  • The smaller move remains more likely given the continued disagreement among committee members on the inflation outlook, their shared worries around the stickiness of core services inflation, and the uncertainty around the exchange rate, which remains volatile since early June.
  • BBVA think that under a very restrictive monetary policy stance in a context of weakening economic activity and slower job creation, core services inflation is set to break its stickiness in coming months, paving the way for Banxico to lower its excessively high real ex-ante rate.
  • In view of the lags of monetary policy, BBVA think that Banxico is already late in adjusting the excessively high real ex-ante rate, and thus, the monetary policy stance is set to continue to weigh on the economy in the coming quarters.
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  • While BBVA do expect a 25bp Banxico cut this week, they acknowledge a forceful 50bp move would be a very welcome surprise and a sound policy decision. They don’t rule out that growing evidence of a slowdown in economic activity as well as the 50bp cut by the Fed from last week could embolden the board to opt for a bigger 50bp cut. BBVA assign a 30% probability to this outcome.
  • The smaller move remains more likely given the continued disagreement among committee members on the inflation outlook, their shared worries around the stickiness of core services inflation, and the uncertainty around the exchange rate, which remains volatile since early June.
  • BBVA think that under a very restrictive monetary policy stance in a context of weakening economic activity and slower job creation, core services inflation is set to break its stickiness in coming months, paving the way for Banxico to lower its excessively high real ex-ante rate.
  • In view of the lags of monetary policy, BBVA think that Banxico is already late in adjusting the excessively high real ex-ante rate, and thus, the monetary policy stance is set to continue to weigh on the economy in the coming quarters.