Mexico: Banxico changes style as cut rates – TDS

Banxico has substantially changed the style of its monetary policy decision statements. February’s rate cut has introduced somewhat more hawkish elements, though with a downgraded growth outlook that continues to argue for further easing in the near term in the opinion of analysts at TD Securities. The USD/MXN pair is sitting at 18.578 after falling with the news.

Key quotes

“The summary of the growth scenario was certainly dovish, acknowledging the inability of Mexico to gain a positive growth trajectory, and stating that slack conditions have continued to widen. 2020 GDP forecasts are thus to be further written down with the balance of risks tilted to the downside.”

“Also interesting was that the decision was taken in a unanimous manner, which is a hawkish development and comes as some surprise given the unconstructive growth developments. This certainly removes any risk of a 50bp cut from the picture for the time being.” 

“Our takeaway is that this is a fairly mixed statement, and difficult to interpret given the substantial change in style from Banxico's previous modus operandi. We feel that the hawkish elements are coming through wage adjustments, and prudent concern with negative shocks to the currency, which we see most likely triggered by fiscal and/or ratings events.”

“We continue to see growth conditions arguing for 25bp cuts at each meeting this year, but suspect that the rates market may net-interpret this hawkishly given the unanimity of the decision and the concern with stickiness in core inflation. For the peso, it is additional positive news given the lack of dovishness, as relatively high yields should continue to help sustain inflows despite the weak domestic and global growth environment.”