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BBVA Not Expecting A Shift In Tone At This Meeting

MEXICO
  • BBVA believe Banxico will remain cautious until it becomes more confident that core inflation is headed toward target and the Fed clearly signals a definitive pause (something they think will not happen this year). With October’s inflation falling to levels slightly below 4.3%, Banxico will likely revise down its forecasts. As to core inflation, BBVA do not expect any meaningful changes in its forecasts.
  • Banxico is thus set to remain backward-looking in the short term and to keep its policy rate steady at 11.25% for at least this upcoming meeting and the following in December. BBVA are not anticipating any major changes in Banxico’s statement tone.
  • Yet, even if Banxico is unlikely to signal the start of a rate cut cycle in the short term, BBVA expect it to gradually start to shift its tone, as the Fed is already doing, to signal that even if it is not around the corner, the next move will mark the start of an easing cycle that gradually brings down the real ex-ante rate from its current extremely elevated levels.
  • Although BBVA continue to expect a rate cut cycle in 1Q24 (as they think that will be warranted to avoid a further tightening of the monetary policy stance with falling inflation and real rate levels increasing further), BBVA think that Banxico’s cautiousness and hawkishness are significantly tilting the risks towards a further delay in the start of this cycle.
  • Governor Heath, for example, conveyed a hawkish message a couple of weeks ago by stating that not only has the balance of risks for inflation remained skewed to the upside, but also that it has deteriorated recently.
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