Traders certain Bank of Mexico will cut rates, hours after expecting a hold

Traders now treat a quarter-point cut in the Bank of Mexico's interest rate at its November meeting as certain. Bets on the cut surged from unlikely to certain within hours, a full reversal of the morning view that the central bank would leave its rate alone. The bank's decision was scheduled for this afternoon, and the data available does not include its statement, so the cut has not been confirmed.

The reason for the swing is not clear. No public development has been found that credibly explains it or the earlier swings during the day, and the story will be updated if one emerges.

A hold was the likely outcome through the morning and into the early afternoon, with bets on it dipping and recovering several times while a cut stayed unlikely. In the hours before the announcement, bets on a cut jumped to a toss-up and bets on a hold fell to match them. Bets on a hold then briefly recovered toward likely before collapsing. Within a short span after that, traders treated a cut as certain and a hold as ruled out.

The shift ran against what analysts had been saying. The bank held its overnight target at 6.50% on Sept. 24 in a unanimous vote, according to El País. The rate has stood at that level since May. Minutes published Oct. 8 showed that three board members had opened the door to discussing a possible cut.

A Citi survey reported Nov. 4 by Bloomberg Línea found that 20 of 36 respondents expected no near-term move, while six expected a cut at this meeting. BofA and Banamex both expected a hold, according to Investing.com, though BofA called a cut a significant risk. Those reports came before the latest swing in bets, so they do not explain it.

The bank's statement will settle whether it lowers its target by 25 basis points, holds it or makes some other change. If it cuts, the target would fall from 6.50%. Minutes of the meeting are scheduled for Nov. 19 and should give more detail on how the board voted and why.