Mexico | With inflation in check and slowing growth Banxico will deliver a second 50bp cut

Summary

Banxico could keep the door open to a third 50bp cut in May before slowing down to more cautious 25bp adjustments. This would strengthen our expectation that Banxico will bring down the policy rate to a below-consensus 7.5% by the end of this year.

Key points

• Key points:
• Last week, the Fed kept rates unchanged at 4.25-4.50% and continued to signal two 25bp rate cuts later this year, but a rate cut in the near term is unlikely.
• In Mexico, inflation readings between policy meetings continued to support the Board’s strategy to keep removing the still excessively tight monetary policy stance at a fast pace.
• Core services inflation continued to ease, driven by a slowdown in the broad “other services” subindex as well as by the moderation of housing services inflation.
• A further rebalancing between (lower) services inflation and (somewhat higher) core goods inflation will allow core inflation to edge a bit further down to 3.5%.
• The increasing evidence of the country’s economic slowdown suggests that Banxico is unlikely to be concerned about demand-driven inflationary risks in the near term.

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