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Scotiabank Believe Banxico Will Maintain 25Bps Hiking Pace

MEXICO
  • Expect a hike of 25 bps in the last meeting of 2021. For 2022, they expect hikes of 25 bps up to terminal rate of 6.00%, leaving the policy setting around neutral stance.
  • However, the TIIE curve suggests market participants expect a steeper rate hike cycle, on the tight side of monetary policy. Scotia also see some rising risks on inflation and the policy response, but not to the same degree as market is pricing. Like the Banxico Board, Scotiabank’s view might change if inflation data keeps beating expectations in its upcoming releases.
  • There are several reasons why they don’t expect this pace acceleration:
  • First, they don’t believe that Mexico needs to maintain a pace of 50 bps hikes given that monetary conditions never got anywhere as loose as other regional economies during the pandemic. A gradual move towards neutral-to-slightly-tight conditions should be enough to anchor inflation, especially as we head into mid-2022
  • Given dovish expectations for newly appointed Governor Rodriguez, Scotia think the current Board would be reluctant to undermine her credibility by hiking 50 bps, only to then have the new Board reduce the pace of hikes.
  • Additionally, given her closeness to Esquivel, we would not be surprised if some of their views on monetary policy align, which we think makes it difficult for the pace of hikes to move to 50 bps under her mandate.
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