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JPMorgan: Now See Banxico Hiking 50bps in March to 6.5%

MEXICO
  • In the first statement with Victoria Rodríguez as governor of Banxico, the board maintained a very similar approach to the farewell communique from Diaz de Leon. Indeed, the 4-1 action was a welcoming smooth transition considering the challenges for Banxico in terms of inflation woes and the Fed pivot.
  • JPM now expect Banxico to stick with 50bp in March and changing gears thereafter, matching its actions with the FOMC’s decisions. The path is expected to be bumpy given inflation uncertainty in both Mexico and the US, and the forthcoming actions related to quantitative tightening.
  • Of note, Banxico expects an important downside trend in the CPI path from 2Q, which distances markedly from JPM forecasts for both seasonally-adjusted and non-seasonally adjusted data.
  • While the rhetoric on future Fed actions was not explicit, the board underscored the increasing challenges related to tighter global monetary and financial conditions, which suggests the Bank is already preparing to welcome the Fed to the ongoing tightening global fest.
  • JPM expect Banxico to hike in a similar fashion to what their US economics team expects for the Fed with intermittent hikes subject to tapering and QT decisions.
  • JPM note a word of caution. With the policy rate now in restrictive territory by some metrics (for Banxico, the point estimate for the mean of the nominal neutral rate is 5.6%), the debate within the board is expected to intensify, taking into consideration the cyclical conditions of the economy. Still, with the ex-ante real policy rate expected to reach between 2.5% and 3% by year-end, JPM believe there is space for Banxico to continue hiking, particularly considering that in the previous two hiking cycles of 2007-2008 and 2017-2019 the real policy rate stood near 4% levels. A comfortable spread versus the Fed is a welcoming development during hiking cycles in order to maintain orderly conditions in financial markets, in the context of high economic and political uncertainty.
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