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Goldman Sachs: Expects Rates to Rise to 8.50% by Year-End

BANXICO
  • The decision was in line with GS’s call and the broad market consensus, and in our assessment, the post-meeting policy statement is hawkish. Not only was there a dissenting vote for a bolder 75bp but the MPC stated that at the next meeting it will evaluate adapting more forceful measures to attain its target.
  • For the MPC the top 3 upside risks to inflation are (1) persistence of core inflation “at high levels”; (2) external inflationary pressures driven by the covid pandemic; and (3) higher agricultural & energy price pressures due to the recent geopolitical conflict.
  • We expect the MPC to hike another 50bp at the June 23 meeting, to 7.50% and to drive the policy rate to 8.50% by end-2022, given the recent high headline and core inflation prints, highly disseminated upward price pressures, and deteriorating inflation expectations. In our assessment, there is a growing risk of bolder 75bp rate hike in June and overall a deeper hiking cycle in 2022.
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