Free Trial

Barclays on Banxico - Debate Between Gradual And More Decisive Actions

MEXICO
  • The minutes maintained a similar tone versus the post-decision communique. There does not appear to be a strong commitment to maintaining a similar pace ahead, reiterating their rationale that the larger hike was decided “on this occasion”.
  • Barclays continue to expect Banxico to hike 25bp on February 10, but the outcome will depend on debate with the new Governor Victoria Rodriguez.
  • If she leans toward a 50bp hike, this might please market expectations. However, then it might be difficult to moderate expectations ahead and could lead sooner than expected toward more restrictive financial conditions amid a still-weak economic recovery.
  • On the other hand, if she supports a more gradual approach with a 25bp hike, this might be perceived as dovish by market participants. However, it is Barclays view that this could be overcome by stressing three issues: (1) It is highly likely that headline inflation has already peaked, according to the staff forecasts. The decline is even more evident in the newly released 3m/3m saar trajectory; (2) Banxico has already hiked 150bp in this cycle; and in this context (3) Banxico needs to leave space to adjust ahead and follow the US Fed, who Barclays believe will initiate lift-off in March
  • Barclays continue to see value in steepeners and remain paid the 2s5s TIIE spread, and tactically short USDMXN spot.

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.