Additional Interest Rate Increases Expected from Banxico

Posted on June 29, 2021 by Pulse News Mexico One comment

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By THE PULSE NEWS MEXICO STAFF

After Mexico’s Central Bank (Banxico) shocked financial markets with a surprise .25 interest rate hike on Thursday, June 24, analysts are now predicting that the bank will issue additional increases this year to combat surging inflation, which reached more than 6 percent in May.Banxico raised its key rate to 4.25 percent in a split decision, so rate traders are now betting on more aggressive hikes to come, with around 131 basis points of adjustment in addition to the bank’s quarter-point hike last week.The next quarter-point hike could come in August, depending on market prices, according to Bloomberg analysts.

Banxico is battling unexpectedly strong price pressures, Bloomberg said, with faster-than-expected inflation hikes released just hours before the rate announcement.

Consequently, it said, Banxico has unlocked its set interest rates to combat inflation.

Bloomberg adjusted its interest rate forecast and now foresees that this year the rate will close up to 5.25 percent, 100 points more than its current level.

By the same token, JPMorgan said it expects Banxico to make three increases of more than 25 basis points, in the August, September and November meetings, to end the year at 5.0 percent.

“We think that now the monetary policy rate is going to reach 5 percent this year. Currently, it is at 4.25 and next year it could reach 5.5 percent, already in the context in which in 2022 we are going to approach the beginning of the cycle of increases in the United State,” said Gabriel Lozano, JPMorgan’s chief economist for Mexico and Central America.

Meanwhile, Banorte said that it predicts that the central bank started a restrictive cycle, and raised its forecast for the rate at the end of the year to 5.25 percent, up from its previous 4.5 percent prediction.

“Specifically, we believe that a cycle of increases has begun, expecting increases of 25 points in the four monetary policy meetings scheduled for this year, which will end 2021 at 5.25 percent,” said Banxico senior economic at Oxford Economics Joan Domene, adding that she expects that, starting in September, there will be more hikes, with the Banxico rate closing this year at 5.25 percent.

A similar scenario was envisioned by Barclays, where specialists from the firm foresee that for the last quarter of this year the Banxico rate will close at 5.25 percent.

Citibanamex analysts indicated that the reference rate would see another upward adjustment of 50 points, to close this year at 4.75 percent, and would remain unadjusted throughout 2022.

In contrast, economic analysts from Scotiabank, CI Banco and Banco Base all predicted that Mexico’s Central Bank will carry out only one more adjustment to the reference interest rate this year, to the end 2021 it at 4.5 percent.

tagged with Banco BASE, Bank of Mexico, Banxico, Bloomberg, CI Banco, Citibanamex, Economy, Finance, Gabriel Lozano, inflation, interest rates, Joan Domene, JP Morgan, Mexico, Oxford Economics, Pulse News Mexico, Scotiabank, www.pulsenewsmexico.com

Pulse News Mexico

Additional Interest Rate Increases Expected from Banxico

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