Mexico:Taylor-made rate cuts

We strongly believe Mexico’s interest rates will fall far lower next year than markets expect.

    With inflation set to slip below the 4% policy ceiling next year, we disagree with theconsensus view of indefinitely flat interest rates near the current 7% mark.

    In fact, we cut our already below-consensus end-2018 rate call to 5% from 6%, as ourTaylor-rule reaction-function modelling supports lower rates.

    Risks to our call arise from US policy (the Fed and NAFTA) and domestic elections in 2018.