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4 May 2016
Mexico: No rate hike on Thursday, still expecting two hikes in 2016 - Rabobank
According to analysts from Rabobank, the Bank of Mexico (Banxico) will keep rates unchanged at tomorrow’s meeting and will raise two times during 2016 (25 bp each time) following actions taken by the Federal Reserve.
Key Quotes:
“We, in line with the Bloomberg consensus, fully expect no-change to the 3.75% Mexican policy rate when it is announced at the Banxico meeting on Wednesday 5th May. Of the 25 analysts surveyed (including ourselves) by Bloomberg, 25 expect no-change and almost nothing is priced into front-end rates for this week’s meeting.”
“Looking north of the border, the Fed still matters for Banxico policy. The US maintains a tightening bias and as Lockhart stated just this week, a June rate hike is still “a real option”. Indeed, our Fed Watcher, Philip Marey, is still calling for two rate hikes this year with the first occurring in June and the second in December.”
“We fully expect Banxico to follow the US if the Fed raises rates and so our base case is for two 25bp rate hikes in Mexico this year.”
“That said, we are also aware that Banxico has a somewhat preemptive reaction function that will see them err on the side of caution when it comes to potential shocks. Furthermore, the Bank has been clear in its view that interest rate hikes are a preferred tool over FX intervention and should we see a sell-off like in January then there would be significant risk of another Banxico rate hike. Given that, we see the risk as firmly skewed to the upside when it comes to our base case of two 25bp hikes and potentially 100bp could easily be plausible, particularly given that we are expecting MXN weakness (driven by global sentiment souring and MXN’s high beta profile) going forward.”
Key Quotes:
“We, in line with the Bloomberg consensus, fully expect no-change to the 3.75% Mexican policy rate when it is announced at the Banxico meeting on Wednesday 5th May. Of the 25 analysts surveyed (including ourselves) by Bloomberg, 25 expect no-change and almost nothing is priced into front-end rates for this week’s meeting.”
“Looking north of the border, the Fed still matters for Banxico policy. The US maintains a tightening bias and as Lockhart stated just this week, a June rate hike is still “a real option”. Indeed, our Fed Watcher, Philip Marey, is still calling for two rate hikes this year with the first occurring in June and the second in December.”
“We fully expect Banxico to follow the US if the Fed raises rates and so our base case is for two 25bp rate hikes in Mexico this year.”
“That said, we are also aware that Banxico has a somewhat preemptive reaction function that will see them err on the side of caution when it comes to potential shocks. Furthermore, the Bank has been clear in its view that interest rate hikes are a preferred tool over FX intervention and should we see a sell-off like in January then there would be significant risk of another Banxico rate hike. Given that, we see the risk as firmly skewed to the upside when it comes to our base case of two 25bp hikes and potentially 100bp could easily be plausible, particularly given that we are expecting MXN weakness (driven by global sentiment souring and MXN’s high beta profile) going forward.”