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📝 See A 50% Chance Of A Banxico Unanimous Pause: Scotiabank

Writer's picture: Rosbel DuránRosbel Durán

Markets seem to have taken the Banxico comment as a clear-cut signal that the rate tightening cycle is now officially over; rates are only pricing in a 4% probability of an additional hike, followed by a start to easing within the next 6 months (a 25bps cut is fully priced in by then). We tend to agree that what’s priced into rates markets is the “most likely scenario”, but we also think that the odds of a final hike are somewhat underpriced.

Like the Fed, Banxico seems to now be at the final stages of its tightening cycle, and now simply tweaking around the edges. For a few meetings now, Banxico’s primary concern has been core inflation, which only has one print where both its primary components fell (goods & services), and that print was a bi-weekly reading, not a full month print.

Our sense is that the most optimistic part of the Mexican curve is three years out, where the implied policy spread is now slightly below 400bps, but we also think the near term part of the curve is somewhat on the tighter side. If data are mixed, we think the most likely scenario is a pause, but it could be a split vote. Overall we assign the following odds: 50% to a unanimous pause, 20% to a split pause, 20% to a split hike, 10% to a unanimous hike. - Scotiabank



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