Mexico | Banxico to stay the course amid weak growth and disinflation

Summary

We expect Banxico to deliver a 25bp rate cut and to signal that the easing cycle still has room to continue. We think further easing toward at least the midpoint neutral rate estimate remains warranted amid a weak demand outlook.

Key points

• Key points:
• Last week, the Fed delivered a widely anticipated 25bp rate cut, lowering the fed funds rate target range to 4.00-4.25%, and signaled that further easing is likely.
• In Mexico, economic data released since the last Banxico monetary policy meeting confirm that activity remains weak despite the temporary boost in Q2.
• The Q2 rebound in headline inflation has continued to unwind in Q3; core inflation will likely ease as the balance between goods and services inflation normalizes.
• Dovish signals from Board members and supportive financial conditions suggest the policy environment remains conducive to further easing.
• Against this backdrop, Banxico can continue guiding rates toward a more neutral stance without compromising its inflation target or financial stability anchors.

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