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Scotiabank on Banxico: Delivered A Somewhat Dovish 25 Bps Hike On Thursday

MEXICO
  • Banxico highlighted the continued rise in both headline and core inflation in Mexico and noted the rise in inflation expectations for both 2021 and 2022, but highlighted that long term inflation expectations remain anchored. With this, the argument of inflationary pressures being temporary is reinforced, but balanced against it (and likely supporting the hikes) is the counter argument of the need to avoid a contamination of the price formation process. On this same direction, it's worth noting that Banxico's balance of inflation risks is skewed 5:3 in favour of upside risks.
  • The tone of the statement did not show a material shift to the hawkish side, which Scotiabank take as support for their view that the pace of hikes will continue to be 25 bps per meeting, sustained without interruption until the first meeting of 2022, then followed by gradual tweaks to eventually take policy back to neutral settings (6.0%) at the end of 2022.
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