- As widely expected, Banxico cut the monetary policy rate by 25bp at today's meeting. The decision was divided, as Irene Espinosa voted for a pause.
- While the statement maintained a cautious bias on the inflation balance of risks, it acknowledged that there has been progress on disinflation, which allows for this downward movement. However, the forward guidance keeps signalling the possibility of further adjusting the monetary policy rate depending on conditions.
- Tomorrow, INEGI will publish March bi-weekly inflation. We forecast that headline inflation increased by 0.17% FoF (4.37% YoY) and core inflation 0.27% FoF (4.63% YoY).
- In our view, the room for policy easing in the next meetings remains wide open, inflation data in coming months could be favourable, particularly due to seasonal factors that benefit energy prices.
- All-in-all, our positive view towards local rates remains. There is scope for a downward adjustment in all tenors but particularly in the front end. In fact, the curve rallied around 12bp after the decision. This is in line with our tactical long position in the short end of the curve. Nonetheless, since we are heading into the beginning of the easing cycle, we continue to see value in adding duration as a directional position.
- We continue to expect the MXN to depreciate in the following months. In our view, the fact that Banxico is already ahead of the Fed in the easing cycle should start weighing negatively on the currency going forward. This, together with the electoral noise and a tight valuation should favour a movement towards levels around USDMXN18.5 in the 1H24.