📝Current Banxico Swap Curve Below The September Meeting: Scotiabank

Banxico left its monetary policy rate unchanged in a unanimous decision at 11.25%, as widely expected. In addition, the Board revised downward its average headline inflation forecast for 2023-Q4 and 2024-Q1, to 4.4% y/y and 4.3% y/y, respectively. Banxico left its monetary policy rate unchanged in a unanimous decision at 11.25%, as widely expected. In addition, the Board revised downward its average headline inflation forecast for 2023-Q4 and 2024-Q1, to 4.4% y/y and 4.3% y/y, respectively.

We believe that the expected pace of economic growth in the coming year could generate inflation pressures through higher demand for products and services. In addition, the possibility of another double-digit increase in the minimum wage could foster labour cost pressures for the following year.

In terms of private sector expectations, the consensus of analysts foresees that the cutting cycle would start in 2024Q2, ending that year at 9.25%, although some analysts expect the first cut to occur even earlier, in 2024Q1. After the statement, implied rates were slightly lower than the levels seen last week, implying markets now anticipate slightly lower rates in the next two years owing to the little forward guidance provided by Banxico’s statement. In fact, the current swap curve is below the curve observed after the September meeting. This is in contrast to what the markets are expecting from the Fed, as implied monetary policy rates increased this week after Jerome Powell’s speeches. - Scotiabank