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JPMorgan: Revise Terminal Rate Forecast To 10.25% To Be Reached By Q1’23

MEXICO
  • While there was speculation about a possible 100bp hike, JPM thought this unlikely, particularly for a central bank that tends to move very cautiously. That does not mean it is off the table, but many factors would have to move in the same “wrong” direction for it to become a tangible possibility (Fed, CPI, CPI expectations).
  • Banxico showed acute concerns about inflation on many fronts. The Bank mentioned the risks to inflation were “considerably” skewed to the upside, a step-up in its categorization of the magnitude of the risk. They also pointed out for the first time in recent history that not only medium-term but also long-term inflation expectations have moved north, which JPM have pointed several times is something to which Banxico is very sensitive.
  • JPMorgan think concerns on which Banxico is basing its decisions are not going to change anytime soon: CPI will remain very high, and sequential momentum also strong, expectations could further drift higher, and Fed will continue to tighten. On inflation, it’s worth noting developments in the labor market that could slow the downward trend expected for CPI.
  • On these factors JPM revise up their terminal rate forecast to 10.25% from 9.25% to be reached by 1Q23, including a 75bp hike in August instead of 50bp.
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  • While there was speculation about a possible 100bp hike, JPM thought this unlikely, particularly for a central bank that tends to move very cautiously. That does not mean it is off the table, but many factors would have to move in the same “wrong” direction for it to become a tangible possibility (Fed, CPI, CPI expectations).
  • Banxico showed acute concerns about inflation on many fronts. The Bank mentioned the risks to inflation were “considerably” skewed to the upside, a step-up in its categorization of the magnitude of the risk. They also pointed out for the first time in recent history that not only medium-term but also long-term inflation expectations have moved north, which JPM have pointed several times is something to which Banxico is very sensitive.
  • JPMorgan think concerns on which Banxico is basing its decisions are not going to change anytime soon: CPI will remain very high, and sequential momentum also strong, expectations could further drift higher, and Fed will continue to tighten. On inflation, it’s worth noting developments in the labor market that could slow the downward trend expected for CPI.
  • On these factors JPM revise up their terminal rate forecast to 10.25% from 9.25% to be reached by 1Q23, including a 75bp hike in August instead of 50bp.