Wall Street Banks Lift Mexico Rate Forecasts 


Mexico analysts from JPMorgan Chase & Co to Barclays Plc raised their interest rate bets for Latin America’s second-largest economy after its central bank shocked investors with a larger-than-expected hike.

Both Wall Street banks now expect Banxico, as the monetary authority is known, to raise its key rate to a record 11.5%. Gabriel Lozano, JPMorgan’s chief economist for Mexico and Central America, even sees a high probability of another 50-basis point hike in March if core inflation continues to surprise to the upside.

Mexico stunned markets Thursday by increasing borrowing costs by half a percentage point to a record 11%, out-pacing the US Federal Reserve. The central bank’s board also said that it could deliver a smaller hike at its next meeting, suggesting new increases are in the pipeline. The national statistics institute reported earlier that consumer prices rose 7.91% in January from a year earlier, above the 3% target.

Read More: Banxico Stuns Markets With Big Hike to Tackle Inflation Woes

“We now think that two more 25bp hikes are forthcoming in the next two meetings (March and May), with risks for the bank instead opting for 50bp in March given our expectations for a more persistent inflation path, and a final 25bp in May,” Lozano wrote in a note to clients.

Grupo Financiero Banorte raised its terminal rate forecast to 11.5%, from 11% before. Citigroup Inc. now sees one last hike to 11.25% in March and borrowing costs ending this year at 10.75%, above the prior estimate of 9.75%.

Barclays, in addition, now discarded the possibility of rate cuts this year, a team led by Gabriel Casillas, the bank’s chief Latin America economist, wrote in a note. Banxico will not be able to start easing at least until February 2024, when policymakers might start guiding borrowing costs toward 7.5%, they wrote.

Source: El Financiero

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