TRADEIDEAThemarketisalreadypricingaround40bpofratecutsuntiltheendofthisyearand95bpuntiltheendofnextyear.OurstrategyteamexpectsBanxicotobecomemoredovishamidstglobalgrowthdecelerationandthedovishstanceofcorecentralbanks.Thisshouldbenefitshort-termMexicanrates,inourview.Oureconomistsarecallingfor50bpcutsuntiltheendofthisyearanda150bpcutforthewholecycle.WeremainpositionedinMexicanratesthrough1y1yTIIEand10yTIIEreceivers.MARKETECONOMICS|EMSTRATEGY|EMECONOMICSKEYMESSAGESMexico'scentralbankonThursdayunanimouslyagreedtokeepitsreferencerateat8.25%.Banxico'soveralltonedidnotdepartmuchfromthatinFebruary,althoughwedidseehawkishfactorsdominatedovishones.However,wethinkthisisacentralbankthatwantstodeliveraratherbalancedtoneatthispoint.WereiterateourcallfornomonetarypolicyratecutsuntilQ4asthelistofinflationriskslinkedtoevolvingtrendsandeventsisstilllong.FLASH|LATAM28March2019BanxicoonThursdayunanimouslyagreedtokeepratesonhold,aswidelyexpected.Overall,thecentralbank'stonedidnotdepartmuchfromFebruary,althoughwedidseehawkishfactorsdominatedovishones(seeFig.1forBNPP'sBanxicotonetracker).However,wethinktheintentionoftheBoardistoofferabalancedrhetoric.Wethinkthecentralbankcontinuestobecarefulnottotriggerratecutexpectationsintheshort-term,whileuncertaintyremainsatelevatedlevels.WhilethelistofupsideanddownsideinflationaryriskshasremainedthesameasintheQ1QuarterlyReport–overalltiltedtothedownside,wedrawattentiontothefactthatBanxicohashighlightedthatsomeofthefavourableshocksthathadpushednon-coreinflationlowerhavebeguntorevert.Incontrast,thebalanceofactivityhasremainedtiltedtotheupside,withnoexplicitfurtherdeterioration.WereiterateourcallfornoratecuttobedeliveredinH1againstthebackdropofaratherlonglistofupsideinflationrisks(seeMexicorealitycheck:2019outlookupdate).WestillexpectBanxicotocut,butnotbeforeQ4,whenawider(negative)outputgapalongwithhintsofagradualdowntrendincoreinflationmaymakeconditionsmorefavourableforBanxicotobeginitsnormalizationcycle.PleaserefertoimportantinformationandMARdis...
