Mexico: Banxico to hike by 25bps today - TDS

Research Team at TDS expects Banxico to hike by 25bps today, a move that they believe will be highly focused on signaling an aggressive stance towards still elevated inflation expectations, but also to Banxico’s flagging of the US rate policy trajectory that has remained in its statements up to now.

Key Quotes

“We also believe there is a risk that Banxico takes the opportunity to de-emphasize the Fed policy ‘tether’ and thus dovishly signal a desire to hold after this hike, given relatively tight monetary conditions, a more stable exchange rate and partial amelioration of political risk.”

“We do not discount the possibility that Banxico would elect to not hike rates, though we believe this is ill-advised as it would be better policy execution and communication strategy (that would enhance market confidence) to hike 25bps more, and then change the communication strategy to indicate an end (or near to an end) in the hiking cycle.”