📝 Growth And Inflation Do Not Support A Banxico Pause After March Hike: Scotiabank

As widely expected, Banxico delivered a 25bps hike, to 11.25%. The decision was unanimous by the five board members.

Inflation expectations remain on the rise. Analysts expect inflation to end 2023 above 5.0%, and in 2024 close to 4%, but still above the Bank of Mexico’s target rate range. The Board of Governors revised marginally upwards its core inflation expectations and downwards its headline inflation expectations for the short term, although it holds the outlook of convergence to the 3.0% target in the last quarter of 2024

Among the implications of the monetary policy stance, the exchange rate could face further appreciation episodes as the market expects the end of the rate hike cycle to be close, in addition to the fact that the dollar has recently weakened owing to the banking events and the stance taken by the Fed. Additionally, the Mexican peso has strengthened, as the Mexican financial system has not seen much impact from the events in the banking sector. We expect the MXN to maintain this strength until the next Fed meeting. Moreover, implied policy rates indicate that this would be the last increase by Banxico, although the pace of economic activity, along with current inflation levels do not suggest that it will slow enough in the medium term to not consider at least one more increase. With this, the next inflation prints will determine the central bank’s stance and the terminal rate, where current consensus is 11.50%.

- Scotiabank