Mexico | A 50bp cut from Banxico would be welcome, but a smaller 25bp move is more likely

Summary

In view of the lags of monetary policy, we think that Banxico is already late in adjusting the excessively high real ex-ante rate, and thus, the monetary policy stance is set to continue to weigh on the economy in the coming quarters.

Key points

• Key points:
• Last week, the Fed cut the policy rate by 50 bps to 4.75-5.00% and unequivocally confirmed that its focus has shifted to the labor market.
• Headline inflation in Mexico dropped to 4.6% YoY in the first half of September, from the 5.6% peak in July, amid fading supply shocks.
• After touching the upper band of Banxico’s target range in August, core inflation edged down to 3.95% YoY in the first half of September.
• A second consecutive rate cut seems a done deal, as recent developments suggest that both Rodríguez and Borja will join Mejía again in supporting a rate cut this week.
• A forceful 50bp move rather than a gradual and more likely 25bp cut would be a very welcome surprise and a sound policy decision.

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