Banxico does not expect inflation to return to the 3% target until the end of 2024. If inflation falls as expected, we see room for rate cuts towards the end of this year or early in 2024. However, the central bank continues to emphasize the upside risks to inflation, which is why we expect it to maintain an attractive real interest rate even after rate cuts begin. As a result, we do not expect the Peso to depreciate significantly against the USD, especially as we expect the Federal Reserve to cut interest rates next year as well.

An important risk factor for the MXN remains developments in the US. If the US economy cools down more than expected, this would also weigh on the Mexican outlook. This would likely limit upside risks to inflation and could imply a sharper cut in Mexican interest rates and a correspondingly less attractive real interest rate outlook, which would weigh on the Peso.