Mexico: CPI inflation slows but Banxico awaits further confirmation to cut again – Rabobank

Economists at Rabobank expect Banxico to leave the policy rate at 4.25% on Thursday, December 17, but remain of the view that Banxico will cut rates below 4.00% in the new year. Meanwhile, USD/MXN remains under pressure as risk remains bid and that relationship remains key for price action in the coming months.

See – Banxico to hold, confirm general stability in inflation expectations – TD Securities

Key quotes

“We expect Banxico to leave the policy rate unchanged at 4.25% on Thursday, December 17. This is in line with 16 other analysts surveyed by Bloomberg while four are expecting a 25bp cut. We don’t think the decision will be unanimous and expect at least one dissent against the decision.”

“CPI inflation has indeed slowed below 4% with November registering a 3.33% YoY print down from 4.09% and below the 3.41% consensus but that was broadly in line with the projections laid out in the Quarterly Inflation Report and we expect Banxico will want to see continued slowing in price pressures before cutting again.”

“Continued MXN strength does argue for a cut as we argued prior to the previous meeting but as we said back then (we had a non-consensus call for a hold decision at the previous meeting), we don’t think the balance has shifted enough for Banxico to cut at this juncture and instead we expect a cut in early Q1.”