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Analysts at Rabobank explained that they  expect Banxico to leave the policy rate on hold at 7.75% on Thursday, 4th October.

Key Quotes:

  • “MXN OIS rates imply around a 30% chance of a 25bp hike while the Bloomberg survey of 25 analysts reveals that only three are calling for a move.
  • If we are correct then it will be only the second time since the tightening cycle began in December 2015 that Banxico hasn’t followed a Fed hike with a rate increase.
  • NAFTA risk has all but disappeared as the United States, Canada and Mexico finally reached a trilateral trade agreement that will be known as the USMCA.
  • The main stumbling block is now the US congress but we expect the deal to pass whatever the outcome of the US midterm elections.
  • MXN didn’t react much to the news as it ended Monday where it closed Friday and going forward we still expect USD/MXN to trade a 18.50-19.50 range in next couple of months.
  • Our base case is still that 7.75% is likely to mark the peak of rates for this cycle but the risk remains skewed towards further tightening.”