Inflation trending lower and a stable Mexican peso suggests that the Bank of Mexico could cut rates again. According to analysts at Wells Fargo point out markets are starting to price in a 25 bps rate cut during the first quarter
Key Quotes:
“This week, CPI inflation data released indicate price growth is beginning to slow in Mexico. In December, inflation slowed to 3.15% year-over-year, falling back in line with the Central Bank of Mexico’s CPI target. The central bank’s past few meetings have been defined by policymakers highlighting the rise in inflation as rationale to keep policy rates on hold. With inflation falling back toward target, monetary policymakers in Mexico could have new justification for another 25 bps rate cut in early 2021. In addition to falling inflation, the central bank’s monetary policy rate setters has arguably turned more dovish. This year marks some turnover to the monetary policy committee members, with historical commentary from new members suggesting rate cuts could be likely in early 2021.”
“Markets have also started to price in rate cuts as well. As of now, market participants believe one 25 bps rate cut is likely in the first three months of 2021, and with the fall in inflation and dovish turn in policymakers, we forecast a 25 bps rate cut in take place in the first quarter of this year.”
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