Mexico: Banxico will continue to strengthen its monetary policy settings - TDS

Sacha Tihanyi, Deputy Head of Emerging Markets Strategy at TD Securities, Banxico hiked by 25bps yesterday and the statement highlighted the very negative impact of the Texcoco airport cancelation on MXN and the country's sovereign risk profile, which Banxico feels could affect the Mexico's macroeconomic conditions in the medium and longer term.

Key Quotes

“Banxico highlighted the persistence in core inflation, and the increase in headline inflation expectations, the two key drivers of our view for a hike at this meeting.”

“We take this communication as an indication that Banxico will continue to strengthen its monetary policy settings at the December meeting with a 25bp hike, unless a substantial improvement in inflation is achieved (which would be surprising), or the Mexican government sends a positive signal to markets and foreign investors, effectively eliminating the uncertainty created by the Texcoco cancelation. This is highly unlikely in our view, however.”