Mexico: Banxico’s statement could sound less hawkish than previously – Wells Fargo

On Thursday, the Bank of Mexico will annoujnce its decision on monetary policiy. Market participants expect a rate hike (most likely of 50bps), as infaltion continues to run well above Banxico’s 2-4% target. According to analysts at Wells Fargo, the central bank’s statement could sound less hawkish than previously amid weaker-than-expected economic data. 

Key Quotes: 

“Mexico's central bank announces its monetary policy decision next week, with the consensus forecast for another aggressive rate increase from the central bank. Mexico's central bank surprised the market at its December meeting, increasing its Overnight Rate by 50 bps to 5.50%. The central bank cited "the magnitude and diversity of inflation shocks" as well as "the risk of price formation becoming contaminated." With Mexico's CPI inflation still well above the target range, the consensus forecast is for another 50 bps rate hike to 6.00%.”

“In addition to any rate increase, the focus will be on guidance from Mexico's central bank surrounding future hikes, and whether the pace of tightening could slow going forward. It is certainly possible the central bank's accompanying statement could sound less hawkish than previously. Economic reports this week, for example, show Mexico's Q4 GDP dipping by 0.1% quarter-over-quarter and the January manufacturing and services PMIs declining, while next week Mexico's January CPI is expected to slow to 7.01% year-over-year.