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Goldman Sachs on Banxico Quarterly Inflation Report

MEXICO
  • The 2Q22-QIR will contain updated forecasts for growth (likely to be downgraded) and headline/core inflation over the relevant horizon for monetary policy (expected to have deteriorated visibly versus the forecast path in the 1Q22-QIR with convergence to the 3.0% target now delayed to 1Q2024, versus 2H2023 previously).
  • Furthermore, in the 1Q22-QIR the central bank may update the overall growth-inflation balance of risks and possibly the forward guidance vis-à-vis the most recent set of MPC Minutes given that for the QIR, the central bank has a larger set of data than it did when the MPC last met on Feb 10, namely: 1H May inflation report and the revised (2nd vintage) real GDP figures for 4Q2021 (marginally higher than the 1st vintage flash expected).
  • Against a backdrop of higher inflation, higher rates, and tighter domestic financial conditions, the central bank is likely to downgrade the outlook for real GDP growth in 2023 and at least the upper-limit of the 2022 range.
  • In order to calibrate the monetary policy path, GS will pay particular attention to the characterization of the balance of risks to inflation (which they expect to remain biased to the upside) and the list and ranking order of both upside and downside risks to inflation.
  • The latest minutes showed a relatively hawkish balance of views within the MPC. Hence, in their assessment, the bar to accelerate the pace of tightening from 50bp to 75bp is relatively low.
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