Bank of America (BofA) revised its forecast for the Mexican Central Bank, Banco de México (Banxico), predicting an acceleration in the pace of interest rate cuts. This adjustment comes as headline inflation continues to decline, currently sitting below the 4.0% mark, which is within Banxico’s range of variability.
BofA now anticipates a more aggressive 50 basis points (bp) reduction in Banxico’s upcoming decision on February 6, a revision from their previous call for a 25bp cut.
The rationale behind this change is supported by several factors, including a higher real interest rate compared to previous instances when inflation was below 4%, ongoing fiscal consolidation, a weak economy, and both core inflation and consensus expectations remaining under the 4% threshold.
The most recent minutes from Banxico’s board meetings reveal that the majority of members are open to the idea of speeding up the rate cuts. Despite this potential for a quicker pace, BofA maintains its expectation for the terminal rate to stand at 8.75%.
The research firm also notes that should the United States impose tariffs on Mexico, it is likely that Banxico would pause its rate adjustments.
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