Banxico surprisingly and adequately strikes a dovish tone

Summary

Banxico cut the policy rate by 50 bp to 5.0% and surprisingly made significant dovish tweaks to the wording of the statement.

Key points

• Key points:
• Although the changes were absolutely warranted, they were unexpected given Banxico’s hawkishness and the recent larger-than-expected temporary rise in inflation
• The tone of the statement is dovish for the first time in the rate cut cycle and points to 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)
• Both market and consensus expectations will likely come down following today’s statement

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