The Bank of Mexico (Banxico) kept as expected the key interest rate unchanged at 8.25%. Sacha Tihanyi, Deputy Head of Emerging at TDS, explained that the statement came out on the hawkish side. They see the central bank on hold for the rest of the year.
Key Quotes:
“Banxico’s statement was on the hawkish side, with a unanimous decision to keep rates on hold at 8.25%, as we and the market had expected.”
“The inflation risk outlook was relatively unchanged, and while policy makers noted that there had been an intensification of some downside risk factors for prices (likely growth based), they also reiterated that upside risk factors could be of greater magnitude. Thus the bias of inflation risk remains to the upside.”
“The policy outlook section of the statement remained virtually unchanged.”
“Our take remains that Banxico will remain on hold for the duration of this year, with our view on the risk bias being that cuts would eventually be more likely than hikes at this point, outside of a substantial destabilization in the peso. Yield remains the one support or stabilizing factor for MXN, and Banxico would be highly unlikely to risk peso stability by signaling easing while core inflation, inflation expectations, and overall uncertainty remains high.”
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