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At today’s board meeting, the Bank of Mexico left interest rates unchanged as expected. Analysts at Rabobank, expect the central bank to keep remain on hold for now while holding a hawkish bias.  

Key Quotes:  

“Banxico left the Mexican policy rate on hold at 7.75% at its October 4th 2018 meeting. This was expected by the vast majority of analysts surveyed by Bloomberg (including ourselves) and the MXN OIS market implied less than a 30% chance of a 25bp hike. One member dissented in favour of a 25bp hike. This is only the second time since the tightening cycle began in December 2015 that Banxico hasn’t followed a Fed hike with a rate increase.”

“This meeting did little to alter our base-case view that Banxico is unlikely to raise rates again this cycle although the Bank does maintain a hawkish bias.”

“Rabobank’s Fed view is that we will see a fourth 2018 hike in December and one in March 2019 with the risk of another in June. That, however, stands in contrast to the median path of the Fed’s DOT plot which implies a hike in December and then three further 25bp increases in 2019. If we are proven wrong and the Fed does follow its DOT plot implied path then we expect Banxico to raise rates to at least 8% with a likely maximum of 8.50%. That is not our base case but instead it reflects the main risk to our view. MXN is the other main risk which Banxico highlights as its first policy consideration and to our mind, if USD/MXN moves sharply north of 20.5 then further hikes could be forthcoming.”