Rate cuts in Brazil and Mexico will continue

The central banks of Brazil and Mexico loosened policy this month, and we expect that they will continue to cut rates in Q4. Inflation in both countries is below target, and both economies are struggling and in need of policy support. In Mexico, dovish votes at this month’s meeting prompted us to reduce our end-year rate forecast from 7.50% to 7.25%. In Brazil, however, we think that market expectations of another 75bp of cuts are overly dovish; we expect one more 25bp cut, taking the Selic to 5.25%.