Falling oil prices open the door to rate cuts in Mexico

Mexico’s growth story has lost some of its shine in recent weeks. We still expect GDP growth to accelerate in 2015. But the recent fall in oil prices, coupled with the fact that fiscal policy is likely to be tighter than we had previously assumed, means that the economy may need additional support from monetary policy to bolster growth. We are revising down our GDP growth forecast to 2.0% for this year and 3.0% next year (from 2.5% and 3.5% respectively). In addition, we also now expect interest rates to fall by another 50bp to 2.50% over the coming months, and would not be surprised to see policymakers start with a 25bp cut at this Friday’s monetary policy meeting.