Mexico: Banxico hikes and remains hawkish – TDS

Sacha Tihanyi, deputy head of emerging markets strategy at TD Securities, points out that the Banxico has hiked its overnight policy rate by 25bps, in line with the bias of market opinion and our view.

Key Quotes

“The statement itself actually introduced quite a bit of new language, with an increased focus on the interplay between monetary policy and uncertainty regarding the new administration's policies, as well as the importance in executing/attaining the fiscal goals laid out in the recently released 2019 budget. Growth risks have increased to the downside, while inflation expectations (both core and headline) have continued to increase.”

“With respect to the key hawkish changes to the statement, Banxico included language highlighting concern that the magnitude of recent minimum wage increases will bring about overall wage revisions that exceed productivity, which will negatively impact inflation and employment dynamics.”

“All in all, this is a more hawkish statement than we had expected, with its increased focus on wages and inflation expectations. Thus while we do not at this point officially call for another hike in the early new year, we believe that the bias of risk now sits well in that direction. This now gives increased importance to Banxico's meeting minutes and other official policy maker communications ahead of the next (February 7th) policy meeting.”