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Banorte Forecast Faster Hiking Pace For Next Two Banxico Meetings

MEXICO
  • Banorte adjust their Banxico call, now seeing the central bank front-loading hikes after recent developments. Specifically, they now expect a 50bps hike on December 16th (previous: +25bps), taking the rate to 5.50% by year-end.
  • For 2022, Banorte still estimate 125bps of accumulated rate increases, but would happen in February (+50bps), June (+25bps), September (+25bps) and December (25bps). With this, the rate would reach 6.75% by the end of the year (previous: 6.50%)
  • In their view, three main factors argue in favour of the call: (1) The Fed’s more hawkish bias, likely resulting in an accelerated tapering and more rate hikes in 2022; (2) Higher-than-expected inflation and recent signals from two Board members about the convenience of accelerating the hiking cycle; and (3) A weaker MXN, both in absolute terms and relative to other EMs, as well as deteriorated technicals, heightening risks for prices.
  • Decisions will remain difficult and likely without unanimity. However, they cannot rule out that the ‘Omicron’ variant, and its potential effect on activity, convinces some members of maintaining the current pace.
  • On the other hand, new restrictions due to the pandemic may exacerbate price pressures due to its effect on global aggregate supply, strengthening the case for further actions.

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