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Finamex: Probability Of 50bps December Hike Has Increased Significantly

MEXICO
  • The Minutes corresponding to Banco de México’s monetary policy decision of November 11 appear to have a more hawkish tone than that of the communiqué, potentially opening the door for a 50bp hike in December.
  • In their view, there are three key elements to believe that Board members are watching a more worrisome inflationary outlook and that a greater response is needed.
  • First, that inflation levels matter. There was consensus among members about current (and expected year-end) levels, reaching their highest level in 20 years, and elevated inflation gap levels widening as a concern.
  • Second, that short-term inflation expectations continue to revise upwards, responding to the observed levels of inflation. Higher inflation levels ahead could continue pushing these expectations even further.
  • And third, the fact that there are at least two members debating over the speed of the monetary policy tightening.
  • However, regarding the Banxico Governorship, Finamex believe that the configuration of the future Board will be more dovish, even more than with Herrera, and less expert on monetary policy. In sum, there is more uncertainty regarding monetary policy decisions ahead.
  • Overall, Finamex believe that the probability of a 50bp increase in the next monetary policy decision has increased significantly.
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