Itaú BBA - Frontloading rate cuts

Scenario Review - Mexico

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Frontloading rate cuts

octubre 14, 2019

A clearer deceleration in core inflation will be key for frontloading the easing cycle


For the full version with all charts and tables, please open the attached pdf file
 

• President Trump’s impeachment process could further complicate the USMCA approval process this year. Meanwhile, the government announced additional support for PEMEX. 

• We revised our GDP growth forecast for 2019 to 0.3% (from 0.4%) and kept it at 1.1% for 2020. Uncertainties over the direction of domestic policy and trade relations with the U.S. are weighing on economic activity. The government-transition effect on fiscal spending should gradually fade, which would likely support some recovery in 2020. 

• We now expect the policy rate to end 2019 at 7.00% (before 7.25%), assuming a 25-bp cut and a 50-bp cut in the last two monetary policy meetings of the year, respectively, and to end 2020 at 6.00% (before 6.25%). We expect the majority of board members to agree with frontloading the easing cycle when they see a clearer deceleration in core inflation (which is likely, given the more favorable inertia due to lower headline inflation, the behavior of the currency and the widening output gap).


João Pedro Bumachar
Julio Ruiz



For the full version with all charts and tables, please open the attached pdf file



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