Banxico about to cut interest rates again - Commerzbank

This evening, European time, the Mexican central bank (Banxico) will announce its regular interest rate decision - anything other than another 25bp cut would be a big surprise. The fact that monetary policy is still likely to be far too restrictive given the weakening real economy speaks in favour. In recent months it has become increasingly clear that Banxico has probably left the key interest rate at a (too high) level for too long, as the real economy has apparently been posting fairly solid growth figures for a long time and inflation has not approached the target, Commerzbank's FX analyst Michael Pfister notes.

A cautious Banxico is certainly a good sign for the peso

"But that has now changed. Instead of growing at over 3% year-on-year, as in 2023, the Mexican economy is likely to grow at half that rate this year. The surprisingly strong economic growth in the third quarter, which was partly distorted by special factors, cannot hide this. Banxico is likely to take a similar view, which is why it is further reducing the degree of monetary tightening today."

"The fact that Banxico has not yet made any larger interest rate cuts despite this restrictive monetary policy is probably due to the rather stubborn inflation. Although the core rate has recently continued its disinflationary trend, the headline rate has recently risen slightly. Banxico may therefore also revise its fourth-quarter forecast slightly upwards today."

"A cautious Banxico is certainly a good sign for the peso, but the central bank can do little to change the circumstances that favour a weaker peso. Therefore, one should not hold out too much hope that today's decision will be able to stop the current depreciation trend."