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Commerzbank sees Banxico on hold, revises USD/MXN outlook lower

The bank argues recent Banxico rate cuts were justified by moderating inflation and a weakening economy, so tighter policy conditions are not yet in place.

Reported · Written up by our desk · Major Pairs

Commerzbank strategist Michael Pfister says Mexico’s central bank, Banxico, has little reason to tighten policy even as markets have priced in about three rate hikes over the next 12 months, according to FXStreet.

Pfister points to moderating inflation and Mexico’s weakening economy as the backdrop for Banxico’s recent rate cuts, adding that the current inflation data and the “struggling” real economy do not provide grounds for a policy change.

He also cautions that removing those tightening expectations could weigh on the peso, but expects support from weaker US Dollar conditions, robust US growth, and resilient Mexican exports.

As a result, Commerzbank revised its USD/MXN forecasts slightly lower across the forecast horizon, citing the potential for a weaker USD if rate hike expectations are scaled back.

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