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MXN: Focus on Banxico minutes - TDS

Analysts at TDS feel that the minutes from the November Banxico meeting will be rather interesting as the very important shift in the Banxico communication that re-elevated the importance of the U.S. – Mexico policy rate differential to prime importance above other factors in the outlook portion of the statement (up from 3rd to 1st).

Key Quotes

“This came after a significant re-rating of the Fed expectations, and a deterioration in NAFTA negotiations. The addition of a further risk to the inflation outlook in wage pressures also enhanced the hawkishness of the statement.  While this came after a period in which MXN had sustained an approximate 8% depreciation on the back of aforementioned factors, we believe that the shift in the Banxico emphasis suggests that they are now watching the Fed differential once again.”

“We changed our call to a 25bp December hike from Banxico (from on hold), however we acknowledge that if financial markets, and thus the peso, perform extremely well before then, there is risk that Banxico elects to keep the powder dry.”

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