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Scotiabank Say Growth Resilience Should Reinforce Tightening Path

MEXICO
  • Banxico is widely expected to hike by another 75bps on Thursday as it generally follows the Fed. The FOMC’s more hawkish stance this past week is likely to keep Mexico’s central bank on a tightening path into at least early 2023 especially as growth is so far resilient.
  • Mexican Q3 GDP growth beat consensus at 4.2% y/y, suggesting that there is some room for additional hikes before growth is impacted more significantly by the lagged monetary policy effect.
  • Therefore, Scotiabank expect a policy rate of 10.50% by the end of 2022, although the outlook is more uncertain as to how Banxico will conduct monetary policy through 2023. Scotiabank anticipate another 50bps hike in early-2023, remaining at 11.0% for most of the year until reductions in the final months of 2023. Thus, the effects of monetary policy are expected to reduce inflation gradually, ending 2023 still far from the target. In their baseline scenario, the policy rate does not rise above these levels, but Scotia do not rule out alternative scenarios depending on data in the months ahead.
  • Despite recent comments from dove Esquivel noting that Banxico could start talking about decoupling from the Fed, we think it is much too early for that and markets on edge over the Fed’s hawkishness may retaliate on the MXN too harshly.
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