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On Thursday, the Bank of Mexico will meet and is widely expected to cut the key interest rate by 25 basis points. According to the Research Department at BBVA, Banxico will also cut on each of the remaining meetings in 2019.  

Key Quotes:  

“Banxico will cut 25bp their policy rate on Thursday and on each of the remaining meetings in 2019 Given softer inflation and easing inflation risks an easing cycle has further to run”.

” The wording of the statement will likely reveal a dovish shift on the Board with a very weak economy, falling inflation and the need of better forward guidance.”

“It would not be surprising if in the discussion within the Board at least one member argues for the need to speed up the easing cycle and votes for a 50bp rate cut. Yet, we believe that Banxico will cut rates by only 25bp but we now expect an additional easing of 75bp (to 7.25%) in the remaining of the year (25bp in each of the three remaining monetary policy meetings). We continue to expect an additional 100bp worth of cuts (to 6.75%) by year-end 2020.”

“Larger cuts and a faster easing pace at the moment are, in our opinion, warranted, but Banxico will likely remain cautious as it continues to assess the effect of a less restrictive stance on the MXN and as some Board members were not, until very recently, convinced about the need to start an easing cycle.”

“We continue to think that many more are on the way and that August’s cut marked the start of a long overdue and needed easing cycle. With inflation set to fall further, a relatively stable MXN, a weak economy, a widening negative output gap and with easing concerns in the fiscal front following the well-received 2020 economic package, Banxico should feel comfortable embarking in an easing cycle. A more dovish tone is warranted; A better forward guidance will be welcomed.”