(Nov 2019)



                                                                             Rate of growth %





                                                                            2017       2018          2019 est    2020 est


Output                                                                2.1          2.0               -0.2             1.1

Inflation Dec %                                                   6.8          4.8                2.8             3.4

Exchange Rate Dec (MXN to $)                        19.8        19.7             19.5           20.0 

Policy Interest % rate Dec                                 7.25        8.25               7.5            7.00


We assume the Fed will not make any more rate reductions in 2019 and not for a few months in 2020, thus resulting in an attractive interest rate premium which will keep foreign portfolio inflows into Mexico. The Bank of Mexico has already started to reduce rates, as it acknowledges that inflation is on the 3% target and the Fed rate should remain low, while that in Mexico has ample room to fall before carry trade loses its attractiveness. Even as the Bank is allegedly uncertain about the risk of Mexican fiscal policy (despite the pledge to stringent fiscal targets), the fact is that Mexico has clearly leaned in favour of a conservative approach, which keeps markets relaxed.