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Analyst Comments Following Yesterday’s Banxico Minutes (1/2)

MEXICO
  • *Banorte: Although most members considered that additional monetary tightening is necessary, Banorte perceived greater uncertainty about the pace ahead. Considering their call on the Fed and inflationary conditions, Banorte anticipate +75bp in September, with a terminal rate at the end of the year at 10.00%.
  • At least two members see the need changing the forward guidance. Banorte consider that Jonathan Heath has been the most vocal in the need to increase the institution’s transparency, a situation which they think is also supported in this document. This is important considering his comments about actions ahead, but also on the possibility of including additional information in the statement. It seems that Irene Espinosa has jumped on this wagon, also being more explicit on the forward guidance given the need to reiterate the commitment of the institution with its mandate.
    • In the short-term, Banorte believe that MXN will continue to be supported in the short- term by: (1) Banxico’s relatively high interest rate and the attractive spread when compared to other central banks; as well as (2) lower implied volatility relative to EM peers. In this context, they see the 19.90 to 20.00 per dollar zone as attractive to buy USD because we also recognize a limited room for further appreciation, especially considering a fair value estimate of 21.86 according to our models.
  • *Barclays: Overall, the minutes are in line with Barclays view that Banxico will keep following the US Fed and they expect a 50bp hike at the next meeting. The document shows that despite inflation concerns, the board seems to recognize that a restrictive stance is being reached and that there is some flexibility for the decision ahead to depend on economic and financial conditions. Despite the upside surprise in the latest inflation report, such shock seems to be already incorporated in Banxico's latest forecasts.
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