Banxico and CBRT to hike today – TDS

Analysts at TDS expect that Mexican policy makers will hike this week by 25bps, to bring the overnight rate to 7.25%.

Key Quotes

“The re-elevation of the importance of the U.S. - Mexico rate differential in Banxico’s policy outlook, combined with the increased risks from the high minimum wage negotiation outcome and stickier inflation/inflation expectations, in the face of increased NAFTA risk, justifies the substantially more hawkish stance. In this vein Banxico’s newly appointed Governor Diaz has not deviated from his predecessor’s hawkish tone on the monetary stance.”

“TRY: On 24 November, we mentioned that the CBRT was ready to hike to support an ever falling lira. Although, the currency has since then appreciated, removing some incentive for the CBRT to tighten at this stage, we hold onto our view that the Bank will hike the LLW rate by 125-150bps to allow a 100bps tightening of the WACF. Risks to this forecast are now moderately to the downside. In the Bloomberg survey the median estimate is for 100bps tightening, with forecasts ranging from +75bps to +225bps.”