Mexico Lops Off Quarter Point

As expected, Mexico’s central bank cut its monetary policy rate by 25bp to 4.5%, but analysts are divided on the need for further loosening. The bank says it is pausing the easing cycle and that future actions will be in line with the balance of risks for activity and inflation, with the latter targeting 3.0% by the end of 2010. Goldman Sachs believes that choosing to pause is better than concluding the easing cycle. “In our opinion, the recession will prove deeper than expected, therefore inflation is likely to continue to decline toward 4% by end 2009, thus enabling Banxico to resume modest easing in 3Q2009,” Goldman says. In Credit Suisse’s view, “additional rate cuts would materialize only if 12-month inflation came in below the low end of the central bank’s inflation forecasts for upcoming quarters (4.75% for 3Q and 4.00% for 4Q), which we view as improbable.”