MXN: Growth concerns outweigh inflation – Commerzbank

It was the anticipated close choice. By a vote of 3-2, the Mexican reserve bank (Banxico) the other day chose to cut rates of interest by 25 basis indicate 10.75%, Commerzbank’s FX strategist Michael Pfister notes.

Peso set to stay under pressure

” At the very same time, the declaration plainly suggested that rate cuts might continue in the coming months. This was regardless of an upward modification to the heading inflation projection for completion of the year. Banxico appears to be focusing more on the core rate, which is less unpredictable and, in the eyes of policymakers, has more of a down pattern.”

” In my view, the rate cut sends out a really clear signal: inflation no longer appears to be Banxico’s primary focus, however development issues (likewise underpinned by the 2nd quarter figures, which were once again weak recently) dominate. This is definitely warranted, considered that the genuine rate of interest stays plainly favorable even after the choice.”

” Nevertheless, it needs to be kept in mind that the core rate has actually just recently provided little sign that the inflation target will be reached in the next year and a half. And United States economic downturn issues are not likely to disappear. Provided these threats and the truth that Banxico has actually acted regardless of the MXN devaluation, we feel validated in our view that the Peso will stay under pressure.”