Mexico: Banxico likely to remain on hold in coming months - Rabobank

Banxico kept its key rate unchanged at 7.50% yesterday, which was almost fully expected, only a 3% chance of a 25 bps hike was priced in before the meeting, points out the research team at Rabobank.

Key Quotes

“The decision was unanimous, while the central bank said it’s following closely the potential pass-through of FX movements on prices, what the Fed is doing, and the conditions of slack in the Mexican economy. In other words, Banxico keeps the door open for future rate hikes but the faster than expected deceleration in inflation towards their 3% target provided enough reason to keep policy on hold at this meeting.”

“The market is pricing a 25 bps hike this summer, with an eye on the meetings on June 21 or August 2, but the latter meeting has the advantage that the uncertainty associated with both the Nafta renegotiations (will there be a quick resolution, or not?) and the July 1 Presidential elections should have diminished in August. We however maintain the view that the Bank is likely to remain on hold in the coming months before shifting its bias in the second half of the year. That said, if USD/MXN were to return to the 2017 highs of 22 then the Bank may well raise rates to combat this.”

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