Goldman Sachs on Banxico: Assigns 40% Probability Of Bolder 50BP Action

Released prior to today's inflation data:

• Given recent domestic and external macro-financial developments, GS expect the MPC to follow up with another 25bp rate hike to 5.00%. However, given the higher than expected 1H Oct inflation print and upward move in inflation expectations they assess a 40% probability of a bolder +50bp move.
• Weaker than expected Q3 real GDP growth, softening outlook for activity, and the fact that the policy rate will already be at 5.00% (with a 25bp hike) will likely weigh on whether to accelerate the pace of rate hikes. The October inflation report scheduled for publication on Nov 9 is a key data release ahead of the MPC meeting which may change the probability of a 50bp move, potentially making it their modal call.
• As in the previous meetings, GS expect the forward guidance to remain data-dependent and the MPC to continue to express discomfort with the short-term inflation dynamics, though expecting inflation to converge to the target by 2H2023.
• As well as the decision itself GS will be looking for implicit and/or explicit references to the depth of the current hiking cycle. That is, to which extent with the hikes delivered since June (4 hikes of 25bp assuming a hike at the Nov 11meeting) the resulting tighter monetary stance is, or is not, broadly adequate to secure the convergence of inflation over the relevant horizon for monetary policy given the overall balance of risks.