Banxico announced its latest rate decision on Thursday, March 21, when it decided to cut rates for the first time since 2021. USD/MXN barely moved on the decision. Economists at Rabobank analyze the pair’s outlook.
Support at 16.60 to hold
Banxico announced a 25 basis points cut in the overnight policy rate to 11.00% on Thursday, March 21. The decision revealed a split vote of 4 to 1, with Irene Espinosa dissenting in favor of maintaining the rate unchanged. Despite the rate cut, the accompanying inflation forecasts remained largely unchanged, except for a minor upward revision of 0.1 percentage points to the 2024 headline CPI forecast, which was adjusted from 3.5% to 3.6%. This decision reflects the ongoing trend of inflation rising while interest rates decline.
Our forecast for the end-of-year policy rate remains unchanged at 9.50%. We now anticipate 25 basis points cuts at each meeting, whereas previously we had expected an acceleration to 50 basis points cuts in the fourth quarter.
The reaction of USD/MXN to the rate decision was muted, as the market had largely priced in the expected outcome. We continue to identify 16.60 as a crucial support level on the downside. Additionally, significant weakness in the MXN is improbable given the prevailing carry environment.
