Mexico: Banxico’s easing cycle expected to start in 3Q19 - BBVA

According to the Javier Amador and Carlos Serrano from the Research Department at BBVA, the less hawkish language used yesterday from the Bank of Mexico and the dissenting vote, suggests interest rate cuts later this year are likely. 

Key Quotes: 

“We argued that Banxico should start cutting rates at this meeting but that it would not happen. It did not. Yet, one member voted for a cut and the tone was less hawkish. Both point to a small step towards easing later this year.”

“Although it is important that one member voted for a rate cut as easing will be in discussion in coming meetings, we view as more significant the less hawkish tone of the statement. This considering that the dissenting vote likely came from Gerardo Esquivel, who disagreed with the hawkish tone of the previous statement and likely remains alone within the Board (for now) in his view on inflation risks.”

“The fact that the wording was less hawkish might be more significant as the tone inched closer to resembling weak growth, slowing inflation and easing inflation risks. Going forward we should now focus on likely small incremental steps towards a more dovish tone, paving the way for rate cuts later this year. We now expect more decisive changes to the tone of the statement in the next meeting (Aug 15) and a rate cut in the following meeting (Sep 26). We continue to expect the start of the easing cycle in 3Q19, as reality catches with Banxico.”