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Banorte Maintain Forecast Of 10.00% Terminal Reference Rate By Year-End

MEXICO
  • Banorte expect Banxico to hike +75pbs again, taking the rate to 8.50%. They believe conditions are set for this move, noting: (1) An adjustment of the same magnitude by the Fed in its July 27th meeting; (2) no meaningful evidence yet of a slowdown in current inflation, as well as renewed pressures at the core; and (3) an additional uptick in inflation expectations, especially in those for the mid-term, as informed by the central bank’s survey.
  • Moreover, it is their opinion that Banxico’s cautiousness has played a key role in the relative stability of the exchange rate and the predictability of the monetary stance. This is important for the effectiveness of the policy transmission mechanism. In this backdrop, Banorte expect another unanimous decision and a hawkish tone.
  • There is a modest chance that Deputy Governor Esquivel votes for less (e.g. +50bps) as we believe that he argued in the minutes that it could be preferable to reduce the pace and not follow the Fed as soon as in 3Q22.
  • Considering the inflation backdrop, the relative monetary policy stance with the Fed, and the big challenges faced by central banks around the world, Banorte reiterate their view that Banxico will hike more than consensus anticipates.
  • As such, they maintain their forecast of a 10.00% reference rate by year-end. They also reaffirm their call that this will be the terminal level in this tightening cycle, with easing not materializing until the 2H’23.
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  • Banorte expect Banxico to hike +75pbs again, taking the rate to 8.50%. They believe conditions are set for this move, noting: (1) An adjustment of the same magnitude by the Fed in its July 27th meeting; (2) no meaningful evidence yet of a slowdown in current inflation, as well as renewed pressures at the core; and (3) an additional uptick in inflation expectations, especially in those for the mid-term, as informed by the central bank’s survey.
  • Moreover, it is their opinion that Banxico’s cautiousness has played a key role in the relative stability of the exchange rate and the predictability of the monetary stance. This is important for the effectiveness of the policy transmission mechanism. In this backdrop, Banorte expect another unanimous decision and a hawkish tone.
  • There is a modest chance that Deputy Governor Esquivel votes for less (e.g. +50bps) as we believe that he argued in the minutes that it could be preferable to reduce the pace and not follow the Fed as soon as in 3Q22.
  • Considering the inflation backdrop, the relative monetary policy stance with the Fed, and the big challenges faced by central banks around the world, Banorte reiterate their view that Banxico will hike more than consensus anticipates.
  • As such, they maintain their forecast of a 10.00% reference rate by year-end. They also reaffirm their call that this will be the terminal level in this tightening cycle, with easing not materializing until the 2H’23.