Mexico | Banxico’s easing window remains open despite mixed data

Summary

Lingering challenges for the growth outlook should maintain Banxico’s confidence that monetary policy can (and should) continue to ease. We think Banxico will remain confident in further services disinflation ahead and will proceed with a 25bp rate cut this week.

Key points

• Key points:
• Last week, the Fed left rates unchanged ahead of a surprisingly weak jobs report that showed the labor market has slowed markedly over the last three months.
• In Mexico, economic activity surprised to the upside in Q2, with GDP expanding 0.7% q/q—more than tripling Q1’s pace and beating market expectations.
• Headline inflation eased through the first half of July, supporting a continued, though more gradual, policy easing amid core inflation stickiness.
• Most Board members are likely to maintain the view that there is still room to ease, distancing themselves from Heath’s more hawkish stance.
• The Board is likely to continue adopting a strategically ambiguous forward guidance that reinforces a data-dependent approach while keeping all options on the table.

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