Mexico: Central bank might not hike on Thursday - TDS

On Thursday the central bank of Mexico (Banxico) will hold its meeting on monetary policy. According to analysts from TDS, the bank may get away with not hiking interest rates given the markets’ dovish implied expectation.”

Key Quotes:

“Banxico will announce rates on Thursday, and the main debate is currently whether the Bank is set for a hike, as the consensus expects, or will stay put, as we still advocate. Admittedly, uncertainties have grown exponentially since Brexit, but risks existed even before the vote given MXN underperformance.”

“Quite surprisingly, the market prices in a cumulative 74bps of hikes until year-end, and 41bps at the next August meeting, but only a negligible chance of a hike this week. Banxico last week promised to track the peso relative performance, and act (intervene) accordingly.”

“With the falling likelihood of a Fed hike this year (we now forecast June 2017), there is no need for Banxico to force tighter monetary conditions other than to support the currency. Banxico may get away with not hiking on Thursday given the markets’ dovish implied expectation.”