May 13, 2022 18:33 GMT
- While the decision was widely expected, some uncertainty remained in terms of the bias of the statement and whether some members, or at least one, would push for a more aggressive action given the behavior in inflation (and expectations).
- In the end, and in our view, the statement was outright hawkish in terms of the main inflation concerns for the board (inflation expectations, core inflation persistence, and inertial forces at play) in the context of a challenging global policy outlook. All in, we now see Banxico staying in the 50bps camp for a little longer, with 50bps hikes in June and August, and finishing at 8.75% by the end of the year.
- The Board gave a more complex outlook for inflation and to its expectations. Whether that means front-loading the hikes or a longer path with a higher terminal rate, remains to be seen. We are still eyeing inflation at 7% in spite the heralded Price Plan announced by the government last week. In our view, the plan could bring inflation down by 40-50bps by year-end, which would be closer to the central bank’s updated path. If the plan fails to appease price pressures, a second dissenter in June could appear.