A case for a further 25 basis point discount – Commerzbank

The Bank of Mexico (Banxico) will hold its regular meeting this evening (European time). Right now, all signs point to another 25bp cut to 10.5%. This is supported by the fact that Banxico, with its last rate cut in early August, has already made it clear that policymakers’ focus has shifted in recent months. The focus is now much more on the weakening of the real economy, while inflation, which remains very stubborn, appears to be taking a back seat, notes Michael Pfister, FX analyst at Commerzbank.

Banxico is likely to cut rates by 25bp today

“This is also supported by the fact that Banxico has continued with rate cuts even as the Mexican peso has depreciated significantly in recent weeks, pointing to stronger imported inflationary pressures in the coming months. Recent statements by officials also leave little doubt that they will continue their monetary easing today.”

“With real interest rates still quite high and other central banks considering increasing the pace of quantitative easing, one might wonder if Banxico will also start cutting rates by 50 basis points. However, this seems unlikely, at least for now.”

“The reasons for this are the stubborn inflation mentioned above, but also the fact that data from the real economy, while pointing to a slowdown, does not point to a significant slowdown in the economy. In short, Banxico is likely to cut rates by another 25 basis points today.”