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UBS See Various Interpretations in Banxico Statement

BANXICO
  • Perhaps the most salient aspect of the May statement, is that Banxico included “more forceful measures to attain the inflation target may be considered.”
  • Looking at the original phrasing in Spanish, we think this sentence could be subject to two interpretations. The more hawkish interpretation is that Banxico is simply giving the market a heads up that an acceleration in rate hikes, perhaps to 75bp, is coming.
  • An alternative reason may be that this message was not only intended for the market, but also for the government. Perhaps the phrasing indicates to the government that tighter policy is needed.
  • The other, less hawkish interpretation, is that Banxico is essentially giving us notice that if inflation conditions worsen from here, then it may have to act more aggressively.
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