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JPMorgan Expect Divided 4-1 Decision With One Vote For +50BPs

MEXICO
  • Signs of stabilization in inflation are welcoming news and probably are behind the modest decline in long-term inflation expectations in this week’s Banxico survey — although these expectations have increased 11bps this year. This will be an important topic of discussion, but we believe overall, Banxico’s board will maintain a hawkish approach in its rate decision in order to send a message of vigilance and commitment to its 3% inflation target and the need to anchor mid- and long-term expectations.
  • JPMorgan expect a 75bps hike that will bring the policy rate to 8.5%, the highest level since the overnight rate was introduced as the operational target (Jan 2008).
  • JPM expect a divided 4-1 decision, with one member voting for a 50bps hike on the grounds of softer growth (of note, next week’s June IP is expected to disappoint again at -0.6%m/m, adding downside risks to JPM’s already low 0.5%saar growth for 3Q) and the fact that ex-ante real rates will be, after this month’s hike, in restrictive territory.
  • Banxico sees the neutral policy real rate at 2.6% (in a range that goes from 1.8% to 3.4%) and according to JPM estimates, the ex-ante real rate would be at 3.5%.
  • After this decision, JPMorgan expect Banxico to tone down its hawkish bias, delivering 50bps in September and November, and 25bp in December. In their view, the risk is for 25bps also in November, but for the time being, they stick with their current view of a terminal rate at 9.75%.
  • The July and August inflation prints, in addition to the Fed actions in the context of recession risks will determine whether markets should expect a more hawkish Banxico for longer, or if a neutral approach is to be expected.
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