📝Forecast Banco De Mexico Terminal Rate At 6.0%: Natixis

The MXN remains stable and with an

appreciating bias mainly due to dollar

weakness. This dynamic leaves Banxico

with ample degrees of freedom to continue

cutting rates even as the Fed pauses. In our

view, the spread between the overnight

rate in Mexico and the US depends mostly

on the level of the Fed rate and on global

liquidity. In other words, when the Fed and

ECB lower rates, the spread compresses.

This is related, in part, to portfolio flows.

Global funds seek returns in EM markets

when searching for yield in a global low-

interest rate environment. These dynamics

are reinforced by concerns about the US

administration's economic policies, such as

trade protectionism, hostility toward

immigration, reduced commitment to the

rule of law, and heavy-handedness toward

universities, among other policy changes. In

our view, this new dynamic of dollar

weakness will allow Banxico to cut more

than in previous cycles. We forecast the

terminal rate at around 6.0%.- Natixis