To Bank of America Corp., traders speculating on the direction of interest rates in Mexico may be underestimating the worsening outlook for the economy.
That’s why Ezequiel Aguirre, a strategist at the Charlotte, North Carolina-based bank, is telling clients to bet against them in the swaps market. He says the central bank will only raise borrowing costs by a quarter-point by year-end, half the increase predicted by traders.
Just last week, Mexico cut its growth forecast for 2017 and announced plans to slash spending by an estimated 175 billion pesos ($9.79 billion) after manufacturing exports slowed and lower oil prices crimped revenue. The central bank, led by Governor Agustin Carstens, unexpectedly lifted the key rate by 0.5 percentage point to 3.75 percent in February as part of coordinated government moves aimed at shoring up the peso. The currency has rebounded 6.5 percent since then, easing concern that a weak peso will fan inflation in Latin America’s second-biggest economy.