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UBS: Heath's Data Dependent Vote Tilted Towards 25bps Hike

MEXICO
  • UBS think the CB board remains divided on how monetary policy should react to ongoing inflationary pressures. With inflation still elevated and rising, UBS think the two consistently hawkish members on the current board, Governor Diaz de Leon and deputy governor Espinosa, will vote for a new 25bp hike.
  • Likewise, the two doves, which have dissented in recent hike decisions, Deputy Governors Esquivel and Borja, are unlikely to change their mind, opting once more for no hikes, having stated that with inflation due to converge next year, monetary policy should not be tightened now.
  • This leaves the decision on rates on the shoulders of deputy governor Heath, in their view. In the minutes of the Aug meeting, one member, who UBS would identify as Heath, supported the hike but argued that rates were now consistent with the attainment of the inflation target. However, this member added that future decisions would be data dependent.
  • With inflation again surprising to the upside both in Aug and in H1'Sep, UBS think Heath will vote in favour of another 25bp hike, taking the benchmark rate to 4.75%.
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