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JPMorgan: Banxico Quarterly Inflation Report To Reinforce Hawkish Tilt

MEXICO
  • JPM expect Banxico to maintain the same quarterly inflation forecasts reported in the last policy statement of November 11, but with the emphasis of the presentation tilted towards a hawkish bias on the back of lingering upside risks to inflation, as evidenced in the most recent CPI report for 1H Nov.
  • The Q&A session will be closely watched for any discussion on the nomination of Ms. Rodriguez.
  • Still, downside risks to economic activity are evident, and it would not be surprising if the staff revises down its GDP profile, particularly for this year.
  • JPM recently revised 2021 GDP to 5.8%, four tenths below their previous estimate, although they remain a bit less pessimistic than the market consensus and Banxico regarding next year.
  • Also relevant to policy over the next few months, will be an update on inflation expectations in Banxico’s economic survey.
  • It will be important to see whether short-term inflation dynamics continue to affect only year-ahead expectations or whether they become embedded in a longer horizon. Signs of the latter, even if modest, would likely be a line in the sand for Banxico, and lead to an acceleration in the pace of rate hikes.
  • JPM continue to expect 25bp rate hikes (Dec/Feb/Mar), but risk of 50bp moves is creeping in.
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