Newsquawk Primer: Banxico rate decision due Thursday, 18th May 2023 at 20:00 BST / 15:00 EDT

Expectations: Expected to keep its benchmark interest rate unchanged at 11.25%, according to 12/15 analysts surveyed by Reuters. However, there is a slight risk of a hawkish surprise with the remaining three respondents looking for a 25bp hike. After the initial decision, attention will turn to rate guidance and inflation forecasts. The March meeting saw inflation forecasts lowered for 2023 on the headline but some of the core metrics were revised higher while the guidance was updated in the statement to read "For its upcoming decision, the Board will take into account the inflation outlook, considering the monetary policy stance already attained". Recent data, particularly the slowdown in April inflation, support the case for a pause but does suggest that Banxico is in wait-and-see mode; as such guidance may be maintained to indicate data dependence, alternatively it could be tweaked to suggest they are at terminal.

Recent data: March's inflation saw core metrics above expectations, though cooler than the prior months, while the headline eased by more than expected. However, April's data was more welcome with a slowing seen in both the headline and core metrics; M/M reads cooler than expected while the Core 12-month and headline similarly eased, albeit the latter was above forecast. It is clear inflation is slowing in Mexico, but it remains above the bank's 3% target (2% to 4% range), with the latest print at 6.25%. There are also signs of the economy slowing with February economic activity data and March Industrial Output data indicating some weakness, however, the unemployment rate fell further to 2.4% in March.  

Recent commentary: Governor Rodriguez recently noted that for the coming meetings the board will not be discussing the possibility of rate cuts, but they will discuss halting rate hikes at the May meeting. Although, he noted that the persistence of core inflation at high levels is one of the main obstacles for inflation to slow back towards target. Meanwhile, Deputy Governor Heath has said it appears processed food inflation is starting to slow, and he regards that component as the most concerning given its importance to household spending. Heath also suggested the current real ex-ante (difference between nominal interest rate and expected inflation rate) interest rate is at 6.4%, which represents a terminal rate.  

18 May 2023 - 19:38- Fixed IncomeData- Source: Newsquawk