Mexico | The easing cycle is over

Summary

Banxico’s Board kept its policy rate unchanged at 4.0%; the wording signals a shift from a dovish to a cautious tone. All five Board members voted to keep the policy rate on hold.

Key points

• Key points:
• The easing cycle is done; the next movement will likely be a hike, but will not take place anytime soon and will be driven by the Fed
• Banxico’s Board explicitly acknowledged that base effects will further push up inflation, but that the rise will prove temporary and inflation will fall back to below-4.0% levels
• The aim is to signal that this rise will not come as a surprise and in a context of weak demand, that the Board will not react to this
• Banxico’s Board will not be in a rush to start a hiking cycle
• We expect Banxico to leave the policy rate unchanged the rest of the year and throughout 2022

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