MXN: Base impact within the headline price, rate of interest cuts prone to decelerate – Commerzbank

Final week, Mexico as soon as once more reaped the advantages of the robust relationship between its president and the US president, leading to an additional 90-day postponement of upper reciprocal tariffs. Whereas this doesn’t imply that the problems within the negotiations have been resolved, the robust relationship between the 2 leaders gives hope that progress will likely be made within the coming weeks, Commerzbank’s FX analyst Michael Pfister notes.

Price choice is unlikely to impression the Peso considerably

“Immediately, the main focus of consideration for the Mexican Peso is prone to be home components. The inflation figures for July will likely be the very first thing to be thought of. The headline year-on-year price is anticipated to drop considerably, bringing it nearer to the three% inflation goal. Nevertheless, this is because of a base impact.”

“In July final 12 months, seasonally adjusted costs rose by nearly 0.95% month-on-month, and this enhance will drop out of the year-on-year comparability. The precise new worth enhance is unlikely to sign the all-clear but. In latest months, we now have seen larger worth will increase within the core price once more (see the pink dots within the chart beneath), and if the Bloomberg consensus is right, the July determine is prone to be solely barely decrease.”

“For as we speak’s Banxico assembly, which means that, following 4 larger rate of interest cuts of fifty foundation factors, policymakers are prone to ship a smaller lower of 25 foundation factors. The actual rate of interest is not as restrictive because it was just a few months in the past, and the renewed postponement of reciprocal tariffs offers Banxico the chance to decelerate the tempo. Nevertheless, as that is anticipated by the overwhelming majority of analysts, the choice is unlikely to impression the Peso considerably.”