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MNI Banxico Preview - Feb 2022: Core Inflation Points To 50bp Hike

Banxico Preview - Feb 2022

Banxico Preview - Feb 2022

Executive Summary

  • Markets expect Banxico to raise rates by a further 50bps to 6.00% this month, with core inflation dynamics keeping the board on track with their accelerated pace of tightening.
  • Nonetheless, a newly appointed Governor and persistent weakness in the growth profile indicates the decision is by no means set in stone.
  • As such, the potential for a smaller hike at this meeting should not be fully discounted.

Click to view the full preview: MNI Banxico Preview - February 2022.pdf


Concerns Linger Over Rodriguez’s Policy Approach

Following the departure of Governor Alejandro Diaz de Leon, Victoria Rodriguez has assumed command of the Banxico governing board. In her first remarks to Senators, she emphasised the autonomy of the central bank and the bank’s role in avoiding unintended effects from inflation, however, markets have received very little new information on the new Governor’s stance and comments from President AMLO have done little to alleviate concerns.

Indeed, some analysts have highlighted the 2022 annual program as potentially ringing some alarm bells, citing the sentence, “low inflation is a necessary but insufficient condition for economic development”. Furthermore, speaking at an event, president AMLO highlighted his desire to focus on growth. “One job of the bank is to control inflation and the other, which we would like very much to see, but we are only giving an opinion, is that it also helps to boost growth”, the President remarked. “Inflation can be controlled but if there isn’t growth we don’t make progress”, Lopez Obrador added.

Core Inflation Points to Need For Another 50bp Hike

The latest bi-weekly inflation data indicated headline annual CPI had dipped to 7.13% from 7.45% one month ago. Additionally, this Wednesday’s data is expecting the headline rate to fall back below 7% Y/y. However, the more concerning dynamic for the central bank will be regarding core components. Core inflation exceeded 6% in the first half of January to hit 6.11%, more than double the central bank’s target rate of 3%. Deputy Governor, Jonathan Heath, took to Twitter to remark “Mexico’s core inflation is “still a very complicated scenario”.


Source: MNI/Bloomberg

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