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Banorte See Reference Rate Reaching Terminal Level Of 9.50% By Year-End

MEXICO
  • Banorte estimate a 75bps hike, taking the rate to 7.75%. They consider that conditions for this move are quite clear, taking into account: (1) The 75bps hike by the Fed, and its recent impact on financial markets; and (2) a complex inflationary backdrop domestically, with persistent pressures in the core component.
  • In addition, most recent comments from Board members seem to clearly support a move of this magnitude. On top of the bigger adjustment, they expect the tone to remain hawkish, which would help corroborate their view of another 75bps hike in the August 11th meeting.
  • Given the relevance of the relative monetary stance with the U.S., Banxico Governor Rodríguez commented that they will factor in this at their upcoming meeting. She also said that disorderly changes in foreign interest rates are a risk for financial stability. Although Banorte already had the view of a 75bps hike by Banxico even if the Fed had increased the rate by only 50bps, they believe that, just because of this move alone, the most likely course for Banxico is clearer.
  • Although market adjustments have been orderly, market dynamics and volatility support the need for Banxico to maintain a prudent stance –which has historically characterized the central bank.
  • Banorte believe the tone of the statement and a more challenging environment –in terms of the inflation outlook, global monetary tightening, and financial volatility– will support their call of a relatively rapid tightening for the remainder of the year. The primary target is to take the ex-ante real rate to positive territory quickly. As such, Banorte keep anticipating the reference rate to reach 9.50% by the end of the year, which matches their forecast for this cycle’s terminal rate.
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