Most analysts are expecting Banxico to initiate policy easing, cutting the overnight rate by 25bps to 11.00%, while maintaining a cautious, data dependent stance.
Following the presentation of the Banxico’s quarterly economic update for the fourth quarter in 2023, some board members continued to highlight concerns about the potential resurgence of inflation. Deputies Jonathan Heath and Irene Espinosa spoke about risks and emphasized the importance of basing decisions on available data. Heath warned it would be “a huge mistake to start easing the policy rate prematurely, long before it's clear whether we can truly win the battle". Furthermore, Heath highlighted the risk of declaring victory and cutting interest rates early, while noting the committees desire to not make this mistake. Heath added that any reduction in borrowing costs, "in March or May", should exclusively be related to adjusting the real level of rates.
Ongoing MXN Resilience Should Provide Comfort To Initiate Easing
Analysts continue to highlight the ongoing resilience of the Mexican peso as adding to the Banxico committee’s comfort in adjusting the monetary policy stance. USDMXN recently came within close proximity of the 2023 lows and overall technical conditions remain bearish. The latest recovery this week is considered corrective and the break of key support at 16.7852, the Jan 8 low, confirmed a resumption of the downtrend, which opens 16.6262, the Jul 28 2023 low. A break of this level would open 16.4218, the 1.236 projection of the Dec 5 - Jan 8 - Jan 17 price swing. On the upside, a clear reversal higher would refocus attention on 17.3860, the Jan 17 high and a bull trigger. Initial resistance is at 17.0100, the 50-day EMA.
