Rate cut is not off the table, but we expect Banxico to hold rates steady one more meeting

Summary

Banxico will likely strike a dovish tone to signal that an easing cycle is about to start.

Key points

• Key points:
• It will likely be a close call, but we think Banxico will hold rates at 8.25% on Thursday
• The wording of the statement will reveal a dovish shift on the Board with a very weak economy and falling inflation
• We continue to expect Banxico to cut its policy rate by 25pb in September and again in December; we have penciled in 100 additional bp of cuts in 2020
• Larger cuts and a faster easing pace at the start of the upcoming cycle are arguably warranted, but Banxico will likely remain cautious as it gauges the effect of a less restrictive stance on the MXN and as some Board members were not, until very recently, convinced about the need to start an easing cycle

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