Banxico hikes rates by 50bps in a unanimous decision, above expectations for a 25bps move; says "for its next policy meeting, the upward adjustment to the reference rate could be of lower magnitude"

• The balance of risks for the trajectory of inflation within the forecast horizon remains biased to the upside


• It deemed "given the dynamics of core inflation, on this occasion it is necessary to continue with the magnitude of the reference rate adjustment of the previous policy meeting, 2 in order to be in a better position to tackle a still complex inflation environment."

CPI FORECASTS LIFTED ACROSS FORECAST HORIZON

Reaction details (19:22)

• USD/MXN tumbled following the hawkish rate decision.


• In an immediate reaction it fell from 18.94 to 18.76 before briefly paring to 18.90. Once the dust settled, USD/MXN continued to fall to lows of 18.74 over the following 20 minutes.

Analysis details (19:14)

• Overall, a very hawkish decision from Banxico. It opted to hike rates by 50bps once again and signalled another, smaller hike at the next meeting by stating "the upward adjustment to the reference rate could be of lower magnitude". Some had expected this to be the final hike from the Banxico, but it is clear their fears on inflation remain and more tightening is needed to return inflation to target. The inflation forecasts saw both headline and core figures revised up across the entire forecast horizon, but it is still expected to return to target in the latter half of 2024 as a result of the extra tightening. Nonetheless, Banxico hold the view that inflation risks remain biased to the upside.


• Note, although the decision was unanimous for a 50bps hike, the December meeting saw a dovish dissenter opt for a 25bp hike. The dovish dissenter was Esquivel, who has since retired from the board and Omar Mejía Castelazo has taken his place - showing he is more aligned with the rest of the board than his predecessor Esquivel.

09 Feb 2023 - 19:00- ForexData- Source: Newsquawk/Banxico