Mexico’s central bank, Banxico, made a surprise move with a 3-2 vote to cut its policy rate to 6.25%. The decision narrows the Banxico-Fed policy spread to 225bp, which is described as the lowest in decades. The shift comes as Banxico concentrates on weak domestic growth and a negative output gap, while placing less weight on the risk that a softer peso could feed through into inflation.
Divergence from Global Central Bank Policy
With many central banks tightening into an “inflation hump”, Banxico is now positioned differently, and the policy stance implies greater sensitivity of the Mexican peso to external risk.
Implications for the Peso and Market Expectations
Within this framework, USD/MXN is framed as more likely than not to move above 19, with the easing stance interpreted as consistent with tolerance for further peso depreciation.
