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The futures market is almost fully pricing in that the Fed will cut rates by 50 bps this year (95% implied chances) and continue to anticipate roughly 100 bps worth of rate cuts next year. Markets are certain of a rate cut in September, but are also likely pricing in risks in the event of a Trump’s second term.
The Central Bank kept the policy rate at 50% in line with expectations, maintaining a wait and see approach with a hawkish message. They highlight a potential temporary increase in monthly inflation in July, but expect the rise in the underlying inflation trend to be limited.
In a particularly turbulent environment such as this, it is worth highlighting the calm, rationality, consistency as well as humility with which central banks are implementing their monetary policy.
As expected, the ECB leaves its monetary policy unchanged and leaves the door open for a rate cut at the next meeting in September, awaiting for more data on wages, profit margins and productivity that confirm its inflation outlook.
Higher interest rates have had no significant effect on risk assets. Ample liquidity, the soft landing of the economy and contained corporate and household balance sheets are behind this trend.
The economic activity shows signs of cooling, while the normalization in demand continues to be gradual. The inflation trend continues easing in the presence of historically much tighter monetary stance. Still, high inflation expectations and supportive fiscal stance remain as the challenges on the inflation outlook.
In its July decision, the Board of the Central Bank decided maintain the reference rate at 5.75%. The monetary policy stance, understood as the real ex-ante reference rate, remains in restrictive territory.
Banrep's Board maintained the pace of rate cuts of the last meetings, with a 50bp reduction in June, accumulating a total of 200bp since it began its downward rate cycle in December 2023. The decision was split, with 4 members in favor of the 5…
Board members voted 4-1 to hold rates steady at 11.00%. The fact that the decision wasn’t unanimous came as a bit of surprise considering the recent peso weakening and that Banxico was set to revise up its short-term headline inflation forecast…
The Central Bank kept the policy rate at 50% in line with expectations. We expect that annual inflation will come down to 45-50% by September on base effects before ending the year at 43%. We believe that there would be only a limited room to s…
Mid- and long-term Treasury yields eased further from their late-April’s highs on a less hawkish than expected Fed in this month’s meeting, and fresh signs that the inflation jump in 1Q will prove transitory.
Banxico will most likely suggest it will proceed with caution, at least until more information is available about the judicial reform and the type of fiscal adjustment that will be implemented next year to fulfill the federal government’s commitment to reduce the public deficit by 2.9 points of GDP next year.
