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An initial spike in the stronger peso has been reversed on Banxico's rate decision. The board decided to cut rates by 25bbps to 10.5%. Once again, 50bps steps are not adopted by central banks outside the Fed
Banxico sees GDP growing by 1.5% in 2024 and inflation at 4.3% (both revised lower). Only one board member voted to hold rates steady in September. If forecasts materialized, this will be Mexico's third straight year of economic slowdown
Despite the split vote and the relatively "small" rate cut, peso gains face further rate cuts ahead. Front-end USD/MXN vols read above 16.0%, however, risk reversals have pared some of the bearish peso interest in the 1m tenor
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