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MEXICO: JP Morgan Believe Regime Shift Asserts USDMXN to Higher Range

MEXICO
  • The thesis that the Mexican economy is running aground and poised to disappoint as it did in 2019 seems to be gaining traction amid the lingering uncertainty related to institutional deterioration and trade/bilateral challenges, according to JP Morgan.
  • Particularly challenging is that the current uncertainty is not expected to dissipate soon, and that the economy has been running in low-gears even before risk-aversion was triggered with monetary policy already in ‘easing mode’.
  • To make things more complicated for Banxico, the bursting of the peso bubble that has brought MXN above 20.0 per USD will probably delay the convergence to the inflation target next year. JPM believe the regime switching currently occurring will take the peso to a new range, probably towards 19.25-19.75 by the end of next year, depending on the extent of the uncertainty and the sheer size of the structural shift.
  • JPM see the overnight policy rate at 8% by the end of 2025, still in restrictive zone and question whether a new normal of higher country premium, modest growth, and weaker institutional framework warrant a neutral rate that is even higher than 7%-7.5%.
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EM BulletMexicoBulletGlobalEmerging Market NewsRegion

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