MNI Banxico Preview- Jun 25: Final 50bp Cut Seen In Split Vote

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Executive Summary

• Despite the increase of inflation in May, Banxico is widely expected to continue its easing cycle, with another 50bp cut of the overnight rate to 8.00%.
• This would be in line with most recent communication that stated the board would consider adjusting the monetary policy stance “in similar magnitudes” ahead. A strong peso and ongoing concerns around the growth trajectory are supportive of further easing.
• However, the probability of a dissenting vote has risen following recent hawkish comments from Deputy Governor Heath, who suggested that it may be prudent to pause the easing cycle to assess whether the projected inflation slowdown actually materialises in Q3.

Deputy Governor Heath’s recent remarks suggest that a split vote is likely this week, with the majority of the Board voting for a fourth consecutive 50bp policy rate cut and Heath voting for a smaller 25bp move, or perhaps no cut at all. Heath said that given the recent spike in inflation, he considered it prudent to pause the cuts to assess whether the inflation slowdown projections actually materialise in the third quarter. 

While Heath is viewed by many as the most hawkish on the Banxico committee following Espinosa’s departure, this is a very hawkish comment given the central bank’s prior rhetoric of potentially continuing with rate cuts of the same 50bp magnitude ahead. A potential dissent for a smaller 25bp move from Heath had been circulated among analysts, but a vote for unchanged might change the narrative over the short-term easing trajectory somewhat.