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Mexico Monetary Policy November 2022

Mexico: Banxico hikes by 75 basis points in November

On 10 November, the Governing Board of the Bank of Mexico (Banxico) opted to raise the target for the overnight interbank interest rate by 75 basis points to 10.00%, marking the fourth consecutive 75 basis-point hike.

The Banks decision was driven by a desire to tame elevated price pressures. Although headline inflation dipped in October, core inflation continued to rise in the month, and is now over double the upper bound of the Central Banks 2.0–4.0% target range. Moreover, Banxico revised up its forecasts for core inflation in the coming quarters, even as it trimmed its projections for headline inflation. Banxico does not see headline or core inflation returning to the target range until 2024.

In its communiqué, the Bank suggested further rate rises were in the pipeline, reiterating that it would “assess the magnitude of the upward adjustments to the reference rate based on the prevailing conditions.” Another rate hike is expected at Banxicos mid-December meeting, with rates seen peaking in Q1 next year.

Giving their forecasts, Itau Unibanco analysts said:

“In our view, the [monetary policy] minutes are consistent with Banxico slowing down the pace of rate hikes (to 50-bp, reaching a level of 10.50%) in December given the Fed is also likely to reduce the pace of rate hikes to 50-bp. Next year we expect Banxico to continue following the Fed (keeping the rate differential unchanged), amid a likely difficult core disinflation trend. Our terminal policy rate forecast is at 11.50%, consistent with our view of the Fed Fund rate peaking in the range of 5.25%-5.50%.”

In contrast, Goldman Sachs analysts are more dovish:

“In our assessment, the MPC will have to drive rates further up […] we anticipate a 50bp rate hike at the Dec 15 meeting, to 10.50%, and the policy rate to reach 11.00% by 1Q2023.”

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