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Mixed Readings for Banxico Minutes

MEXICO
  • Markets watch a press conference from Mexican, Canadian and US trade representatives on the future of the USMCA deal, which follows thinly veiled criticism from Canadian ministers earlier this week, who raised questions about the investment climate in Mexico – in particular the mining, energy and biotech sectors.
  • On Banxico minutes, Scotiabank write that the hawkish tone tees up another 75 basis point hike in August, as inflation risks are skewed to the upside. Scotiabank pick up on the board’s willing to act "forcefully" to ensure convergence to the inflation target. They believe Banxico will again hike 75 basis points in August, although do not rule out the possibility that one or two board members may not vote to continue tightening at this pace.
  • JP Morgan write that the minutes were plain hawkish, with all but one member calling for a strong message beyond a “one-off” and suggesting the importance of bringing the policy rate well into tighter territory. They add that financial stability concerns were now more evident than in the May meeting and as such they continue to expect a 75bp hike in August to 8.5%.
  • Goldman Sachs see the minutes as slightly dovish. They write that there was only one director arguing clearly and unequivocally that the next move should be 75bp, and a second director hinting that it will be important to continue to monitor the relative monetary stance vis-à-vis the US and that looking forward, it is necessary to “carefully assess if another increase of a similar magnitude is necessary”. There was also one director with clearly dovish views, warning against the risks of excessive tightening.
  • GS anticipate another 75bp rate hike in August meeting (to 8.50%), and an end-2022 terminal rate of 9.50%, with risk skewed to the upside.
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