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At today’s meeting, the Bank of Mexico cut interest rates for the first time since 2014. According to analysts from Rabobank, it will continue in that direction with two more 25bp rate cuts.  

Key Quotes:  

“The statement was not that much more dovish than back in June but clearly global concerns are weighing, as is the recent stagnation of the domestic backdrop.”

“In terms of policy rates going forward, we haven’t changed our call with respect to the pace of rate cuts but we have of course brought forward the start of the easing cycle. Going forward, we now expect Banxico to cut by 25bp on two more occasions this year at the September 26th and November 14 th meeting, taking the policy rate down to 7.50%. That won’t be enough to discourage carry trade support for MXN but it is important to watch for a global EM rout that could drag MXN down and it is important to monitor domestic fiscal developments very closely as any further rating downgrades could trigger significant capital flights and MXN depreciation.”

“We maintain the view that USD/MXN to primarily trade a 19.20 to 19.80 range in the next 1-3 months.”