Banxico should speed up its easing pace, but will they?

Summary

Banxico still has a very inappropriate restrictive monetary policy stance. Banxico should cut the policy rate by at least 75bp; the odds of a milder 50bp cut are not low, but we expect Banxico to take a bolder step and cut rates 75bp to 5.25%.

Key points

• Key points:
• A freefalling economy and much lower inflation in a context of excessively high real interest rates overwhelmingly supports the case for faster easing
• A loose monetary policy stance is not only warranted, but also urgently needed
• We think that the rate cut cycle has more legs than what markets and analysts are currently pricing in and anticipating, respectively
• We continue to expect that the monetary policy rate to reach 3.0% by year-end, well below the 4.75% level currently expected by consensus and the around 4.5% priced in by markets

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