According to analysts from Rabobank, the Bank of Mexico will keep rates unchanged tomorrow at 8.25% and they expect the statement to leave the door wide open for an inevitable rate cut.
“Of the 22 analysts surveyed by Bloomberg, 12 (including ourselves) are calling for no change, nine are calling for a 25bp cut and one is calling for a 50bp move. The front-end of the curve implies around a 25% chance of a cut this week, 60% in September and an 80% chance of a 25bp cut by November’s meeting. Our base case remains for a 25bp cut in November but there is now significant risk that Banxico signals a move at its next meeting on September 26th.”
“A rate cut can be justified and a rate cut is inevitable – the only question is the exact timing and that will depend on the Fed, domestic data and the currency. Of course, the first two factors scream ‘cut rates now’ with the Fed already reducing its policy rate 25bp in June with signs that more are to come (as noted, we expect two more 25bp cuts from the Fed this year alone), and domestic data continue to sour whether its investment, household consumption, or industrial activity, and inflationary pressures are easing. The latter factor, the currency, argues in favour of waiting as the weakening of MXN poses inflationary risks further out and although price pressures have slowed, inflation has been somewhat sticky and is still north of the Bank’s target (albeit within the tolerance band).”