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Wells Fargo Say Economic Developments Justify Ongoing Banxico Pause

MEXICO
  • Wells Fargo expect Banxico to continue with its extended interest rate pause, keeping the overnight rate at 11.25%, where it has been since March. At its most recent meeting in late September, the central bank revised its inflation forecasts to show a more gradual decline than previously foreseen and indicated that inflation risks remain biased to the upside. The central bank also indicated concerns over the persistence of services inflation.
  • In Wells Fargo’s view, the economic news in recent weeks has offered little reason for Mexico's central bank to shift away from its interest rate pause. Economic growth has remained resilient and, indeed, Mexico's Q3 GDP growth firmed slightly to 0.91% quarter-over-quarter.
  • The September CPI decelerated broadly as expected, with the headline CPI printing at 4.45% year-over-year and the core CPI printing at 5.76%. However, within the details, services inflation actually quickened slightly to 5.23%.
  • With the Mexican peso also weaker against the greenback through much of October, WF expect the Bank of Mexico to hold its overnight rate at 11.25% next week and signal that elevated interest rates will remain for an extended period.
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