Banxico to continue its previous hiking pace and raise rates by 25bps next week – Standard Chartered

Next week, the central bank of Mexico (Banxico) will announce its decision on monetary policy. Analysts at Standard Chartered expected a 25bps rate hike after recent developments on inflation and inflation expectations.

Key Quotes: 

“Banco de México (Banxico) demonstrated a dovish slant at its August monetary policy meeting; a split decision showed disagreement among board members on the output gap and inflationary pressures. However, the recent pick-up in inflation and inflation expectations might hold back the doves. We now expect Banxico to raise the policy rate by 25bps to 4.75% (instead of staying on hold) at the 30 September meeting and gradually tighten to bring the policy rate to 5.00% (prior 4.75%) at  year-end 2021 and 5.50% (5.00%) at year-end 2022.”

“Although August headline inflation slowed given the government’s cap on gas prices, core inflation picked up by 4.8% y/y in August and 4.9% y/y during the first half of September, well above the upper bound of Banxico’s inflation target. Inflation expectations for year- end 2021 have surged above 6% and expectations for year-2022 are approaching the upper bound of Banxico’s inflation target range.”