On Thursday, the Bank of Mexico cut the key interest rate by 25bp. According to Javier Amador and Carlos Serrano from the the Research Department at BBVA, there is still plenty of room to cut rates. They expect the monetary policy stance to reach neutrality by the summer of next year.
Key Quotes:
“Only one member voted for lowering the rate to 7.00% as opposed to two members in November. In our note prior to today’s meeting we argued that a faster easing pace was warranted but that we expected Banxico to remain cautious and lean for a 25bp cut (see) in both today’s meeting and following meetings in the first half of next year.”
That is, today’s hawkish wording along with a larger and overwhelming majority (4 to 1) voting for a 25bp cut reinforces our view of a very gradual easing cycle.”
“Most likely, deputy governor Gerardo Esquivel was alone in his view that a faster pace of easing was warranted. He has not been able to convince other members about the need to ease the monetary policy stance in a context of soft inflation, lower risks, a strong and outperforming MXN, and an increasingly negative output gap. Therefore, we anticipate that Banxico will cut the policy rate by 25bp in each of the next five meetings, bringing it to 6.0% in August 2020.”
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