Mexican interest rates to fall by more than most expect

Mexican inflation has been stubbornly above Banxico’s 2-4% target over the past two years, but we think it will fall back within this range by year-end. And with the Fed’s tightening cycle near its peak, we expect Banxico to shift into easing mode later this year. We’ve pencilled in 75bp of cuts this year and a further 100bp of reductions in 2020, taking the policy rate to 6.50% (from 8.25% now). These forecasts are well below the current market pricing.