JPMorgan Is Changing Its Call on Mexico Rates as Peso Rebounds

  • Firm pushes back forecast for rate increase until December
  • Traders’ inflation expectations have tumbled this month

JPMorgan Chase & Co.’s Gabriel Lozano is changing his forecast for Mexico interest rates as the peso rebounds and growth sputters.

The economist is predicting the central bank won’t raise its lending benchmark until December after the stronger currency made the inflation outlook less worrisome and the economy contracted in the second quarter compared with the start of the year. In late June, he told clients to brace for a rate increase in September. Earlier that month, he had been one of just a few economists to correctly predict policy makers’ half-point boost to 4.25 percent at their June 30 meeting. The central bank’s next decision is set for Sept. 29.

Lozano isn’t alone either. Traders also see inflation pressures abating, with a bond-market gauge known as the breakeven rate falling this month by the most since December. The peso has gained 3.7 percent since weakening to a record low on June 24.

"Given the good performance of the currency, combined with modest growth, there are not many arguments for Banxico to be aggressive on the hiking cycle," said Lozano, referring to Mexico’s central bank.

Lozano expects Latin America’s second-largest economy to grow 2.4 percent this year.

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