Banxico: Flexible stance with upside risks – Rabobank
Rabobank’s Molly Schwartz and Christian Lawrence note Banxico kept its overnight rate at 6.50% but significantly softened forward guidance, decoupling Mexican policy from expected Federal Reserve moves.
Banxico maintained its overnight interest rate at 6.50%, as expected, while adjusting its forward guidance and decoupling Mexico's policy from Federal Reserve moves. Inflation forecasts stayed largely unchanged with core CPI nudged upward. The central bank expects to keep the rate at 6.50%, but sees risks favoring future hikes.
Banxico adjusted its monetary policy statement, emphasizing the ongoing disinflation process and the behavior of determinants such as the exchange rate, slack conditions, and inflation expectations. The central bank reaffirmed its commitment to its primary mandate and low and stable inflation.
While Banxico may not need to adjust the reference rate mechanically in response to anticipated Fed rate adjustments, the balance of risks favors a future hike. Inflation expectations remain largely unchanged, with small upward adjustments in core CPI projections for Q3 and Q4. However, surging oil prices increase the upside risk to the Bank’s inflation outlook.
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