Hawkish Banxico to balance downside growth with upside inflation risks - TDS

Sacha Tihanyi, deputy head of emerging markets strategy at TD Securities, expects a still hawkish Banxico to balance downside growth risks with upside inflation risks, with the latter dominating the policy discussion.

Key Quotes

“We think that while this meeting is likely to bring an acknowledgement of the improved external financial environment that Mexico faces, thanks to a now neutralized Fed outlook, it will be unlikely to provide enough firepower for doves.”

“Certainly the growth environment is increasingly challenged, however there has not been enough improvement on the inflation front to justify anything close to the dovish shift that the market essentially has priced.”

“The previous statement focused on still elevated inflation expectations, which on a 12-month ahead basis has failed to recede, and in fact has only worsened in recent months.”