On Tuesday, the Bank of Mexico (Banxico) cuts its key interest rate by 50bp to 6.0% in an unscheduled meeting. Analyst Javier Amador and Carlos Serrano from BBVA expect the central bank to lower the policy rate to 3% by year-end.
Key Quotes:
“We were expecting this cut in April because Banxico was already well behind the curve and it did not make sense to wait until the next scheduled meeting May 14th.”
“The fact that they did not cancel May’s meeting clearly signals that another rate cut of at least 50bp will come in May.”
“Another welcome change in the statement is that the vote was unanimous, as opposed to March’s decision, which signals that (finally) all Board members seem to see the need for more and faster easing.”
“Mexican peso remained broadly unchanged following the decision, which should further ease Banxico’s concerns as to the possible effects if they speeded up the easing pace.”
“There is no point to highlight inflation uncertainty in the current economic and inflation context as it might be counterproductive for inflation expectations. However, the wording of the statement and the inflation paragraph came much closer to our view on the economy and inflation, and signals that they will cut rates soon and will continue to cut going forward, barring a surprise increase of inflation or inflation expectations that we are not anticipating.”
“We forecast that Banxico will take the policy rate to 3.0% by year-end. Reaching the lowest policy rate on record is warranted.”
“Steps and the implicit signal for the rate cut cycle represent a significant change a welcome development within the scope of Banxico. We still think that Banxico should continue to rapidly ease monetary policy since an easing stance is warranted.”
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