Mexico:  Banxico becoming more focused on uncertainty to both growth and inflation, but dovish yet - TDS

At today’s meeting, the Bank of Mexico kept rates on hold as expected at 8.25%. The decision was not unanimous: one member asked for a rate cut. Analysts at TDS, think that Banxico is becoming more focused on uncertainty to both growth and inflation but they not see a net dovish statement.

Key Quotes: 

 “As we expected the dovish angle to the policy statement has played out through the deteriorated growth outlook, which is likely what led to one member of the policy board to call for a policy rate cut.”

“We do think that Banxico is becoming more focused on uncertainty to both growth and inflation. However, this is not a net dovish statement in our view, as the increased amount of slack in the economy is having little perceptible effect on core, and the stickiness in core metrics as well as elevated inflation expectations remain a constraint. Add to this the increased marco-financial threats from public finances and credit rating risks and we have on net a message of vigilance from Banxico.”

“We can acknowledge the possibility of easing this year (vs. our call for cuts in Q1 2020). However, this is much more likely in Q4 if everything goes "right" with core CPI and inflation expectations, meaning they begin to drop precipitously, but for what reason we cannot currently see.”