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Mexico Monetary Policy March 2023

Mexico: Banxico hikes by 25 basis points in March

At its meeting on 30 March, the Governing Board of the Bank of Mexico (Banxico) delivered a 25 basis-point hike, raising the overnight interbank interest rate target to 11.25%. Banxico has now increased its rate by 575 basis points since January 2022.

The tightening was aimed at containing headline and core inflation, both of which are currently well above the Central Bank’s 3.0% target. The Bank commented that price risks remain biased to the upside, despite headline inflation being lower than expected since the Bank’s February meeting. Additionally, Banxico likely aimed to maintain the interest rate differential with the U.S., following the Fed’s 25 basis-point hike in late March.

Concerning forward guidance, the Bank did not explicitly state its intention to hike at its next meeting in May, instead stressing that the decision would be data-dependent. This contrasts the previous meeting’s guidance, which made clear the intention for further tightening. As such, Banxico is likely at or very near to the peak of its tightening cycle. Indeed, several panelists expect no more hikes, although a small majority still see 25–50 basis points of extra hikes at upcoming meetings.

EIU analysts commented:

“We expect Banxico to continue tightening until mid-2023, bringing the policy rate to 11.75%, and that it will hold the rate at that level until early 2024. Inflation will be slow to return to Banxico’s 2-4% target range, only easing to 5% at end-2023 as price spikes in 2022 fall out of the index.”

In contrast, Goldman Sachs’ Alberto Ramos is more dovish:

“We anticipate a likely final 25bp rate hike at the May 18 meeting, to 11.50%, but the subjective probability of a hike in May was reduced to 65% from 80%.”

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