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Banorte Say Deputy Governor Esquivel To Dissent In Support Of A 25bps Hike

MEXICO
  • Banorte expect the central bank to increase the reference rate by 50bps to 10.50% in its last meeting of the year. This moderation in speed would be supported by: (1) Firm expectations of a hike of the same magnitude from the Fed; (2) lower annual headline inflation in recent prints; and (3) relative stability in local financial assets compared to peers.
  • However, and as already flagged by the central bank, it is Banorte’s take that more restriction is needed as core inflation remains to the upside, which represents a risk for the anchoring of inflation expectations.
  • The vote would not be unanimous, with Deputy Governor Gerardo Esquivel dissenting in support of a 25bps hike. Similar to the previous meeting, Banorte expect the tone to be less hawkish, signalling a further moderation in upcoming adjustments, in line with their view.
  • All in all, they believe the decision –and the tone of the statement– will maintain the trend towards a less hawkish tilt, likely suggesting that additional hikes could be even smaller than this one. In turn, this could be consistent with some members’ signals about the adequate level of the terminal rate.
  • With this in mind, Banorte reiterate their call of two additional 25bps increases each in February and March, taking the reference rate to its estimated terminal level for this cycle by the end of 1Q23 of 11.00%. Afterwards, an easing cycle could begin in late 3Q23, anticipating a level of 10.25% by year-end.
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