Search ForexCrunch

Next week, the central bank of Mexico (Banxico) will have its board meeting. Analysts at Capital Economics expect a final rate cut of 25 basis points, ending the easing cycle. They don’t see scope for additional easing beyond next week as a rise in energy inflation is likely to push the headline CPI back above the top of the target range during the second quarter.

Key Quotes: 

“We think that Mexico’s central bank (Banxico) will deliver one final 25bp cut to end the easing cycle.”

“Banxico’s Board has left the policy rate unchanged at its last two meetings, but it’s clear that a cut has remained a possibility. Both decisions were 3-2 splits (hold versus cut), and both accompanying statements mentioned a ‘pause’ in the easing cycle.”

“Since the last meeting in December, we think the balance has shifted in favour of one more cut. The rise in virus cases means that the economic outlook has worsened. Inflation has fallen back within Banxico’s target range. And the replacement of hawkish Board member, Javier Guzman, with Galia Borja (who is unlikely to be as hawkish as Mr. Guzman) last month points to a dovish tilt on the Board.”

“We see the policy rate staying at 4.00% throughout our near-term forecast horizon.”