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Goldman Sachs on February Banxico Meeting/Decision

MEXICO
  • Given recent domestic and external macro-financial developments, GS expect the MPC to follow up with another 50bp rate hike, to 6.00%. However, they assess a 25% probability of a milder 25bp hike (with a split vote) given the weak growth backdrop and possible concerns among some directors of hiking too-fast too-soon and running excessively ahead of the upcoming FOMC liftoff and normalization cycle.
  • Their modal view is for another 50bp hike (with an outside chance of a discussion and eventually a dissenting vote for accelerating the pace to 75bp) given the intense pressures on core inflation, further deterioration of inflation expectations, and the importance in the current context of the MPC and, in particular, the new central bank governor, establishing strong inflation fighting credentials.
  • Jan inflation print on Wednesday morning may alter the relative probabilities of the different outcomes for the MPC meeting.
  • GS continue to 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 late 2023.
  • As well as the decision itself GS will be looking for implicit and/or explicit references to the depth of the current hiking cycle and how the approaching FOMC liftoff and hawkish pivot condition Banxico’ s short-term calibration of monetary policy.
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