Mexico: Banxico to cut key rate by 50bps – BBVA

On Thursday, the Bank of Mexico will announce its decision on monetary policy. According to the Research Department at BBVA, Banxico will make a 50bp rate cut that would mark the beginning of a long overdue easing cycle.

Key Quotes:  

“All members will vote for a rate cut, we expect a split vote again but now with a third Board member joining the two members that already saw the need for a faster pace of easing in September’s meeting.”

“A 50bp would not take the markets by surprise at all since one third of the analysts surveyed by Bloomberg are expecting a larger cut and the swap curve is pricing in a bit more than 50bp of easing for the rest of 2019.”

“Although given the lag with which monetary policy operates and the current unwarranted restrictive stance Banxico is well behind the curve in the easing cycle, it has shown extreme caution and a smaller 25bp rate cut has a 40% chance in our view.”

“Following the dovish shift in the previous statement, we now expect a clear dovish forward guidance in Thursday’s monetary policy decision accompanying statement.”

“We continue to expect the policy rate to reach 7.0% by year-end and 6.0% by June 2020; a faster easing pace and a looser monetary policy stance are warranted but we expect Banxico to remain cautious.”