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On Thursday, the Governing Council of the Bank of Mexico (Banxico) will have its policy meeting to decide on rates. Market consensus sees a 50 basis points cut. According to analysts from TD Securities, Banxico will cut 50bps during the next three meetings (including this week) and then cut 25bps two times before year-end. 

Key Quotes: 

“We examine the inflation risks that may constrain our more aggressive Banxico easing call, and find little reason to change our view. As such we continue to forecast a 50bp cut at the June meeting.”

“Our inflation projections suggest relatively contained inflation dynamics going forward, leaving us more dovish than the market and bullish on Mexican rates.”

“We don’t necessarily expect the market to price-in this more aggressive stance until closer to September, as we also expect Banxico to remain hawkish in rhetroic, even as it cuts. This is more due to the fact that policy makers do face certain upside inflation risks (particularly stemming from the impact of further potential ratings downgrades), while it costs Banxico nothing to accommodate market pricing by sounding hawkish (on risks) even while dovishly easing.”

“Mexican yields will continue to look attractive and probably offer value, given that 1-year rates still sit near the top of the EM yield complex, when ignoring basket-case economies like Argentina and Turkey.”

“We forecast 50bp cuts at the next three Banxico meetings (June inclusive), before a taper to two further 25bp cuts, to leave the overnight rate on hold at 3.50% by the end of December.”