MXN: Banxico weighs tactical hike to keep FX-related price pressure in check - ING

ING’s Gustavo Rangel expects Banxico’s new Governor Diaz de Leon to begin his tenure at the helm of the monetary authority with a rate hike.

Key Quotes

“Authorities have grown more concerned with the inflation outlook given the persistence of price pressures seen recently and potential for further FX weakness in the near-term, amid NAFTA and electoral uncertainties. Banxico’s board has also become more concerned about keeping the US/Mexico interest rate differential intact.”

“Lastly, burnishing Banxico’s inflation-targeting credentials, after Carstens departure, is another tactical consideration that could play a key role in the bank’s decision-making this week. MXN may find some temporary reprieve from any rate hike – but we note (a) the TIIE curve is pricing in a 25bps hike in 3M; (b) NAFTA is a key driver. Move above 19.00 looked inevitable; a run-up to 19.40 highly likely now.”