Mexico: Central bank to cut its policy rate by 50bp on Thursday – BBVA

FX

The Bank of Mexico will have its Board meeting on Thursday. Market consensus point to a 50bp rate cut to 4.50%. Economist at BBVA Research also see such a rate cut and consider Banxico will keep cutting rates in each of the remaining meetings during 2020 to 3.00%. 

Key Quotes: 

“Following four consecutive 50bp rate cuts, some start to think that Banxico should not press ahead with its easing cycle. We do not share that view. A handful of analysts think that Banxico will not cut its policy rate further (two out of 28 in the latest CitiBanamex survey) due to inflation concerns. Some others think that the chances of a 25bp rather than 50bp cut have increased (six out of 28 expect only a 25bp rate cut). Yet, most share our view that the monetary policy stance should be eased further and Banxico will cut its policy rate by 50bp to 4.50% at its meeting on Thursday (20 out of 28). That is, an additional 50bp cut is expected and a smaller cut would be surprising.”

“Forward guidance is unlikely but we expect Banxico to remain dovish and to brush aside the recent temporary and supply-driven inflation increase.”

We continue to expect multiple 50bp rate cuts going forward and a more appropriate and looser monetary policy stance by year-end as long as the peso continues to hold up. We continue to anticipate four more 50bp rate cuts in the second half of the year (200bp of rate cuts), which is four times what consensus is currently expecting (50bp) and much more than the view currently priced in by markets (75bp). Risks are tilted to less easing but we think that Banxico has plenty of space to cut rates.”

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