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Mexico | Easing cycle continues, but with another hawkish and cautious cut

Published on Thursday, May 14, 2020 | Updated on Friday, May 15, 2020

Mexico | Easing cycle continues, but with another hawkish and cautious cut

Banxico cut the policy rate by 50bp to 5.50% but surprisingly continued to strike a hawkish tone. It seems that the central bank is more focused on the exchange rate and capital flows than on inflation and economic activity.

Key points

  • Key points:
  • More importantly, it seems that the Board (the majority of the Board?) thinks there is tradeoff between an appropriate monetary policy stance in the current context of inflation and economic growth and the peso and financial stability
  • This clearly signals that Banxico will remain cautious and will continue to implement hawkish cuts in the next meetings
  • Yet, we continue to expect Banxico to cut the policy rate to levels below the c. 4.50% that the markets are pricing in by year-end, but we recognize that our year-end 3.0% level became less likely after today’s statement

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