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Scotiabank on BCB/Banxico Policy

LATAM
  • The BCB’s guidance that they will hold the policy rate unchanged until inflation expectations converge to target essentially writes off chances of a May rate cut and could even push the first reduction to the third quarter of the year; markets are currently (mostly) positioned for a first cut at the June meeting. We see the first rate cut in Q3-23, to end the year at 12.75% (i.e., 100bps in reductions by year-end).
  • Commenting before today’s inflation data - With relatively hawkish comments from Banxico officials earlier this week (Espinosa and Heath) the bank looks more than likely to hike by 25bps next week, matching the Fed’s pace. Another half-point hike looks unlikely as it would require another blowout core inflation print—and the weaker US outlook implied by the Fed should spill over into weaker growth in Mexico.
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