Analyst View Ahead Of Banxico Next Week

JPMorgan on Mexico:

• Expect a Banxico 25bp cut to 4.0% next week, but believe the central bank is growing increasingly uncomfortable.
• Hold bearish structural view on the economy, citing lingering damage to investment and private consumption from poor policy, the lack of fiscal aid, disappointing vaccination logistics, and weakened balance sheets of individuals and firms.
• Main concern is related to the energy sector. AMLO submitted an initiative intending to modify the order in which electricity is channelled through the national grid in order to give preference to the National Electricity Commission at the detriment of the private sector. The government, once again, risking a full-frontal confrontation with the US and Canada in the context of USMCA.
• The incumbent party whip in the Lower House cited another priority initiative; the proposal intended to terminate outsourcing.
• These initiatives continue to challenge the strength of the institutional framework and in their view will exacerbate investment anxieties at a time in which certainty is essential, particularly ahead of mid-term elections on June 6, and given renewed concerns on the pandemic.
• As Banxico's decision nears (February 11), these concerns will spark the debate on 'how much space is left?' not only in terms of financial stability, but also in the context of EM central bank peers already looking in the other (hiking) direction.