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Published on Wednesday, February 12, 2020

Banxico to continue the cautious pace of easing

The monetary policy rate has plenty of room to decline without affecting inflation or the MXN. The rate cut cycle should continue without a pause at least until the monetary policy stance is not restrictive.

Key points

  • Key points:
  • Following the split 4 to 1 vote in December, it seems clear that Banxico will not speed up the easing pace at any point of the cycle
  • If Banxico did not cut more aggressively when the FED was easing, they won’t do it now
  • The temporary and expected rebound in inflation in 1Q20 should not be used as an excuse to pause the easing cycle at least until the monetary policy stance is neutral since inflation expectations remain well-anchored at the lowest levels in years
  • We continue to expect the policy rate to reach 6.0% by August 2020; a looser monetary policy stance is warranted but we expect Banxico to remain cautious as they assess a higher risk premium

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