Mexican inflation steadily heading lower; the central bank rate is very restrictive and the peso is very strong. Meanwhile, central banks in other parts of Latin America (including Brazil and Chile) are already cutting rates. This means Banxico will probably cut faster and sooner than is in market pricing (in an election year with government appointees), and still remain credible. A 5Obp cut in December would put the key rate at 10.75% which is still highly restrictive and shows independence from the Federal Reserve.
he risk/reward of faster and deeper cuts with six more hi-weekly inflation prints before the December meeting is pretty good.
Central banks aren't often preemptive and the market impression of Banxico is that it is ultra prudent, at least at the moment. But Banxico has been so reticent to say a single thing that could harm inflation expectations, that is seems like an act -- the change won't be well telegraphed three months in advance. If Banxico still wants the market to respect the inflation trend, the last thing it will want to do is telegraph its intentions for cutting.
- UBS Strategy
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