All surveyed analysts expect Banxico to raise the overnight rate by 25bps to 10.75% at the February meeting.
Deputy Governor Jonathan Heath, speaking on January 17, indicated that Banxico still needs to raise its key interest rate at least once more. While his comments are in line with messaging at the December meeting, that the board “considers it will still be necessary to raise the reference rate in its next monetary policy meeting”, there remains diverging opinions among analysts on the expected terminal rate. Heath went on to say that he does not see the rate going “much higher than 11%, but that will depend on the data.” With rates currently at 10.50%, it is clear we are at the late fine-tuning stage of the tightening cycle and whether or not the committee continue to mirror the Fed, or potentially decouple, will be key over coming meetings.
Core Inflation Remains A Challenge For Central Bank Board
The latest print for the headline annual rate of inflation (bi-weekly data for mid-January) came in at 7.94%, above both the prior reading of 7.86% and surveyed median estimate of 7.85%. Furthermore, and keeping pressure on the Banxico board, core CPI rose to 8.45% from 8.34%, extending the stubbornness for the metric (chart below). In the aftermath of the release, Deputy Governor Jonathan Heath said that "the prices of services (non-tradable) increased from 5.17% to 5.47%. This means internal pressure, possibly derived from increases in labor costs. We still have a lot to worry about."
