Banxico seen raising rates by 25 bp – TDS

Strategists at TD Securities expect the Mexican central bank (Banxico) to hike rate by 25 bp at this week’s meeting.

Key Quotes

“We expect Banxico to hike by 25bps this week, a move that we believe will be highly focused on signalling 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”.

“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”.