BANXICO December Preview

*BANXICO DECEMBER PREVIEW – 17 DEC – 1900GMT/1400ET *

MNI POV – Expected On Hold at 4.25%, A Pause Means A Pause

Despite the lower than expected November inflation prints, Banxico are expected to keep rates unchanged at 4.25%, before continuing the easing cycle in 2021. While this month's decision has been described as 'very data dependent', the credibility of the central bank could be called into question if they were to cut and surprise markets two months running.

Inflation - According to the latest central bank survey the median expectation for headline inflation at end 2020 declined by 31bp, to 3.64%, but for 2021 rose by 2bp, to 3.60%. Whilst the 2020 figures may provide comfort, a pause in December rather than resuming rate cuts will provide more time to "confirm that the trajectory of inflation converges to the target" as per prior communique.

Committee – As has been well documented, Guzman will take part in his final meeting and will be replaced by Galia Borja next year. With her ties to the Finance Ministry, analysts expect a marginal dovish shift relative to Guzman's slightly more hawkish views. The committee composition change adds weight to the call for an extended pause.

Additionally, board member Heath, the sole voter for a cut at November's meeting, said [Nov. 27] "I think that maybe a pause for the first three or four months of next year is just kind of logical," with CPI slowing "quite fast" after April, May.