Mexico: Banxico to rise rates by 25bp, low change of larger hike – BBVA

On Thursday, the Bank of Mexico will have it monetary policy meeting. According to the Research Department at BBVA, Banxico will hike rates by 25bps to 5%. They consider it would be important for the central bank not to signal the possibility of a faster pace of tightening. 

Key Quotes: 

“A strong core inflation print and a further rise in 12-months ahead core inflation expectations will keep Banxico in a tightening mode.”

“We expect Banxico to revise upwards its headline inflation forecasts for 4Q21 and 1Q22 and we would not be surprised if one of the hawk members of the Board votes for a larger 50bp hike.”

“We think the majority of the Board will not vote for a larger hike. We think that a faster pace of tightening is not warranted and would risk and unwanted excessive policy tightening in 2022.”

“If Banxico hikes the policy rate by 25bp two more times by year end, it will take the rate close to the neutral estimated level with the Federal Reserve about to start the liftoff in late 2022. We think that it is a better strategy to avoid increasing rates faster.”