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BBVA: Banxico To Hike +25BPs, Might Hint Future Decisions More Uncertain

MEXICO
  • In a backdrop of slowly easing inflation with a continued rise in core services inflation, and with Banxico fixated on keeping a wide interest rate spread against the fed funds rate, BBVA expect it to stick with its resolve to bring down inflation and deliver a 25bp hike to bring the monetary policy rate to 11.25%.
  • BBVA also anticipate an additional hike of the same magnitude in May to conclude the hiking cycle with rates at 11.50%.
  • However, with inflation slowing and the elevated level of the reference rate, the monetary policy stance will become increasingly restrictive in a context of lower risks to inflation and higher risks to growth.
  • Therefore, BBVA expect that Banxico will maintain a pause at 11.50% for an extended period before embarking in a rapid rate-cutting cycle in 1Q24.
  • BBVA anticipate that Banxico will cut the policy rate by 300 bp during 2024 to a level of 8.50% by the end of next year in order to prevent real ex ante rates from becoming excessively high, which will be unwarranted with falling inflation.
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