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Banorte: Boosts Banxico Terminal Rate View to 9.50%

BANXICO
  • In our view, the tone of the statement was more hawkish than in the previous decision. Specifically, we highlight that: (1) The vote was not unanimous, (2) They added that “taking more forceful measures to attain the inflation target may be considered...”, (3) Inflation forecasts were revised upwards once again
  • We now see a faster hiking cycle, with the reference rate reaching 9.00% at the end of this year (previous: 8.25%). In addition, we estimate the cycle’s terminal rate at 9.50% (previous: 9.25%)
  • On the other hand, risks of at least one 75bps hike in the short-term have picked up, especially in the event of faster tightening by the Fed and/or greater-than-anticipated pressures on core inflation.
  • An open question in the market is if the central bank can decouple from the Fed or not, as the tightening cycle started earlier than in the US. Based on our Fed and inflation views, it is our take that it will not be necessary nor desirable.
  • In our view, there is high uncertainty about the terminal rate due to low visibility in several fronts (e.g.the effect of Chinese lockdowns, the length of the war in Ukraine and a possible extension in sanctions, food price dynamics, recession risks, and the degree of tightening in other economies).
  • Given his skew in previous decisions, we believe the most likely candidate to join Espinosa in voting for 75bps hike is Jonathan Heath, while Gerardo Esquivel would likely not support that call. Therefore, we think it will be very important to identify and analyze comments from Governor Victoria Rodríguez and from Galia Borjato.
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  • In our view, the tone of the statement was more hawkish than in the previous decision. Specifically, we highlight that: (1) The vote was not unanimous, (2) They added that “taking more forceful measures to attain the inflation target may be considered...”, (3) Inflation forecasts were revised upwards once again
  • We now see a faster hiking cycle, with the reference rate reaching 9.00% at the end of this year (previous: 8.25%). In addition, we estimate the cycle’s terminal rate at 9.50% (previous: 9.25%)
  • On the other hand, risks of at least one 75bps hike in the short-term have picked up, especially in the event of faster tightening by the Fed and/or greater-than-anticipated pressures on core inflation.
  • An open question in the market is if the central bank can decouple from the Fed or not, as the tightening cycle started earlier than in the US. Based on our Fed and inflation views, it is our take that it will not be necessary nor desirable.
  • In our view, there is high uncertainty about the terminal rate due to low visibility in several fronts (e.g.the effect of Chinese lockdowns, the length of the war in Ukraine and a possible extension in sanctions, food price dynamics, recession risks, and the degree of tightening in other economies).
  • Given his skew in previous decisions, we believe the most likely candidate to join Espinosa in voting for 75bps hike is Jonathan Heath, while Gerardo Esquivel would likely not support that call. Therefore, we think it will be very important to identify and analyze comments from Governor Victoria Rodríguez and from Galia Borjato.