Will Mexico’s central bank start rate cuts in March 2024? According to Deutsche Bank, Banxico is set to begin policy normalization with a 25 basis points reduction in March 2024, following a period of steady rates.
As markets across the globe tune into the synchrony of monetary policies, eyes turn to Mexico’s central bank, Banxico, which is anticipated to introduce a 25 basis points rate cut in March 2024. This move, expected by Deutsche Bank, marks the commencement of policy normalization after a period of consistently high interest rates.
Last week, Banxico held the policy rate steady at 11.25%, a move that aligned with market anticipations. Looking further ahead, Deutsche Bank maintains its forecast that the policy rate will conclude 2024 at 8.75%, albeit acknowledging the presence of potential upward risks that could sway this trajectory.
The peso, Mexico’s currency, maintains a neutral stance for Deutsche Bank following a profitable position against the euro. Despite the currency pair trading near its lows, the bank sees no immediate catalyst for a shift in valuation. Capital flows have slowed, yet they continue to provide support to the market. The central bank has indicated a preference for a gradual easing approach, which may buffer the peso against sudden volatility.
Adding to the economic equation is Mexico’s political climate, particularly as the nation inches closer to its election cycle. While the current political agenda remains just that—an agenda—its evolution into a more tangible risk factor for the market is a possibility that analysts are watching closely.
Nevertheless, Mexico’s economy has shown resilience, and the attractive carry trade—where investors borrow in low-interest-rate currencies to invest in higher-yielding assets—bolsters the peso’s strength. Among emerging market currencies, the peso ranks well in terms of economic performance and returns, providing a degree of insulation against depreciation pressures.
Despite this, Deutsche Bank prefers to adopt a cautious stance, opting to re-enter the market at more favorable levels. This careful approach is tied to the broader context where significant repricing by the Federal Open Market Committee (FOMC) may exert downward pressure on emerging market currencies, including the peso.
In conclusion, Mexico’s financial outlook is poised at a crossroads, with a central bank rate cut on the horizon, a stable yet watchful peso, and political undercurrents that require careful navigation. The dance between economic resilience and external monetary policy shifts will continue to choreograph the movements of Mexico’s market in the coming year.
What’s your take on this? Let’s know about your thoughts in the comments below!