Banxico will deliver their sixth Monetary Policy decision of the year on Thursday at 1400 EST. UBS economists expect a 25bp hike, along with all other analysts. Since last week, however, the market has started pricing some probability of a 5Obp hike in the upcoming meeting, as well as the November, December, and February meetings - as inflation has continued to surprise to the upside, and a more hawkish Fed and an acceleration by other Central Banks in the region might push the board to act more aggressively.
At the very least, the market is pricing a very hawkish statement, in a shift from previous decisions. Recall that the last couple of hikes have been a 3-2 split, with board members Esquivel and Borja voting for no hike as they view inflation as transitory and wish to keep some space for next year when developed markets are expected to tighten their policy stance. On top of that, board member Heath had mentioned that a pause in the hiking cycle was possible, and further hikes would be data dependent. A 4-1 vote for a hike of 2Sbp might satisfy the market, sending the signal that the doves are willing to join the majority as higher inflation materializes, and that acceleration could be on the table as the majority grows.
Find below the desk's calculation for what is priced in. Note that the market expects consecutive hikes over the next 5 meetings, roughly through March 2022, with roughly 20% chance of an acceleration towards 50bp in each of them.
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