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JPMorgan Expect 10.75% Terminal Rate In February 2023

  • JPMorgan expect Banxico to hike 50bp to 10.5% as widely expected by the consensus.
  • Still, they do not see the board diverting too much from the hawkish approach adopted since mid-2021 considering that mid-term inflation expectations remain above the historical norms. JPM think, however, the dovish member will vote for a 25bp hike as Banxico approaches its terminal rate (which they expect at 10.75% in February).
  • In the context of the ex-ante real interest rate discussion, JPM believe some members will reignite the discussion of Banxico nearing the terminal rate soon, even if this means halting the hiking cycle earlier than the Fed next year.
  • The ex-ante rate is now well into a tight stance, and some members are already weighting in the pros and cons of bringing it above 6%. Some of the remaining concerns that are expected to resonate in the statement should be related to the impending effect from the recent announcement on minimum wages. JPM still believe a “high for long” stance will prevail after the end of the cycle in 1Q23.

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