“Weak price and production data in Mexico augur well for further easing from Banxico, a dynamic supported by our inflation modelling which suggests convergence to around the target level through Q2’20,” note TD Securities analysts.
Key quotes
“The central bank increasingly faces a less complex inflation situation, reducing the risk inherent in compressing the Mexico – US rate differential, particularly in the face of a recently less dovish sounding Fed.”
“While we remain more dovish on Banxico than the market through 2020, we see the risk-reward of moving to 50bp cuts to be too high at the moment. The relatively unleveraged nature of Mexico’s economy dull the growth-positive impact of cuts, while net negative fixed income flows over the past 6 months currently render MXN vulnerable.”
“An improvement in global growth dynamics, aiding acceleration away from near-zero growth in Mexico, would prove magnetic for portfolio flows and improve the risk-reward prospects of more aggressive monetary easing.”
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