July’s elections and Nafta renegotiations make the uncertainties around the outlook for interest rates in Mexico unusually high. An election upset or the collapse of Nafta could result in interest rates being hiked by as much as 200bp. However, under a “no shock” scenario – which assumes a market-friendly outcome in the elections and only modest tweaks to the current Nafta agreement – we think that interest rates may actually be cut this year – perhaps to as low as 5.50% (from 7.25% now).
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