Mexico | Banxico explicitly signals room to diverge from the Fed

Banxico unanimously held its policy rate unchanged at 6.50% for a third consecutive meeting, maintaining its neutral tone but adopting a more cautious forward guidance. An orderly peso adjustment and minimal pass-through will be key as the rate spread narrows.

Key points

• Key points:
• The Board stated that future decisions will consider “the ongoing disinflation process and the expected behavior of its determinants.”
• The more cautious forward guidance likely reflects both market expectations for three additional Fed hikes and this week’s exchange-rate developments.
• The statement stressed that macro conditions differ between Mexico and the US, and that Banxico “would not have to react mechanically” to Fed hikes.
• Additional Fed hikes while Banxico stays in hold could further impact the peso, with some depreciation likely to accompany a narrower rate differential.
• The upcoming minutes will be important for assessing the extent to which the Fed policy tightening has impacted Board members’ views on the policy outlook.

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