Mexico's Banxico Will Hike To 10.00% By End-2022 Due To Price Pressures, More Aggressive Fed  

 

• Fitch anticipates that Banxico will hike by 75bps (to 9.25%) at its meeting on September 29, and then to 9.75% on November 10 and to 10.00% on December 15. This is an upward revision compared to the previous forecast that policymakers would only take the rate to 9.50% by the end of the year.
• The revision is buoyed by surprisingly strong inflationary pressures that will encourage policymakers to tighten policy further and more aggressive rate hikes by the US Federal Reserve (Fed) over the remainder of the year, which will prompt Banxico to step up its own rate hiking cycle in response. 
• Notably, while the spike in inflation this year has been driven in part by higher food and fuel prices following the Russian invasion of Ukraine, core price pressures have also continued to gain steam, suggesting that price pressures are broad-based and likely to persist. 
• Risks to the forecast for 2022 remain to the upside but are more balanced in 2023. In the near term, Fitch forecast two risks: firstly, inflation continues to accelerate or comes down more slowly than currently forecast. Secondly, the US Fed opts for even more aggressive hikes than currently forecast. In either scenario, Banxico would likely hike the rate past 10.00% by end-2022.

(Source: Fitch Solutions)