Rate Cut To Come In H111

We now expect Mexico's central bank to cut the overnight policy rate in 2011, to 4.00% from 4.50% at present, which is below consensus and well below market expectations. The trigger for us changing our view is the trajectory of both the currency and short-term rates, with the Mexican peso right on the key psychological MXN12.00/US$ level at the time of writing, and the yield on the 28-day CETES (peso-denominated government) bond plummeting to 4.10% from 4.45% between December 31 and January 19.

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