Mexico: Banxico's policy rate forecast at 3% by year-end - BBVA

On Thursday, the Bank of Mexico cut the policy rate by 50 basis point to 5.0% as expected. According to the Research Department at BBVA, the statement from Banxico is seen as dovish, supporting their below-consensus 3.0% year-end monetary policy rate forecast.

Key Quotes: 

“Banxico cut the policy rate by 50bp to 5.0% and surprisingly made significant dovish tweaks to the wording of the statement.”

“The tone of the statement is dovish for the first time in the rate cut cycle and points to multiple 50bp rate cuts going forward and a more appropriate and looser monetary policy stance by yearend as long as the peso continues to hold up.”

“We continue to anticipate four more 50bp rate cuts in the second half of the year (200bp of rate cuts), which is four times what consensus is currently expecting (50bp) and much more than the view currently priced in by markets (75bp).”

“As long as the peso does not return to the lows seen earlier this year, Banxico is likely to continue easing the monetary policy rate in 50bp steps. The peso did not react to the dovish statement confirming our view that, in this context, the interest rate differential is not a significant driver of the exchange rate which is now responding almost entirely to global changes in risk aversion.”