MXN - Banxico
BANXICO ANNOUNCEMENT (THU):
The Mexican central bank's January poll of private sector analysts shows expectations for benchmark interest rates to end this year at 10.50% (vs 10.25% in the December survey). Analysts also revised up their view of Mexican inflation, seeing headline CPI at 5.8% in 2023 (vs 5.10% previously), and the core rate of inflation at 5.20% this year (prev. 5.07%). Oxford Economics expects the Banxico to defy consensus expectations with a swifter normalisation cycle. "Our Taylor rule calculation supports our forecast of 175bps in rate cuts during the second half of 2023, taking the policy rate to 9.00%," the consultancy writes, and sees the central bank ending its tightening cycle in February with a 25bps hike to 10.75%, in line with forward guidance provided at the last meeting. "However, the unexpected strength of the peso and the market's recent repricing of a lower terminal rate and earlier rate cuts in the US should provide room for Banxico to start cutting rates from September onwards." OxEco says the Banxico' s decoupling from the Federal Reserve will likely cap the rise of the MXN, although it says that the likely "downturn in the US and a less attractive carry-trade return should prevent the currency from repeating its stellar performance last year"; it sees USD/MXN at 20.5 by the end of this year.