Banxico: Finishing 2018 with another 25 - TDS

Sacha Tihanyi, deputy head of emerging markets strategy at TD Securities, continues to call for a 25bp rate hike at the December Banxico meeting, as nothing fundamental has improved enough to sway Banxico away from what we believe will be further moderate tightening.

Key Quotes

“Inflation uncertainty remains high which keeps the market pricing positioned for a hawkish Banxico. However, we see some degree of risk that the short end eventually prices-out an early 2019 hike, though this is less likely due to any messaging at the December meeting where Banxico will feel compelled to sound hawkish. This will instead depend on December and January inflation prints, Fed rhetoric, and external financial market conditions.”

“USDMXN trading into the end of the year above 20.00 leaves Banxico in a position where failing to hike would send the wrong message to markets. We think it is more likely that Banxico hikes and, dependent on the Fed messaging, buys itself some degree of space to operate with discretion going into the February meeting, contingent on the evolution of core inflation metric as well as inflation expectations.”