Banxico to Follow the Fed with 25bps - TDS

Analysts at TDS believe that following developments in inflation expectations in November, and the still volatile EM environment on the back of elevated UST yields and a strong USD, Banxico will choose to follow the Fed with a 25bp rate hike next week.

Key Quotes

“With the announced departure of Governor Carstens by mid next year, Banxico can ill-afford to lose the market’s confidence on peso stability or inflation expectations at this particularly sensitive time.”

“We wouldn’t expect a hike in December to take much of the February pricing out however, as the risk premium should remain in the curve (and potentially get worse) until the market receives clarification on the incoming Trump administration's NAFTA renegotiation plans. Though we don’t see significant MXN upside on a hike next week, that the market doesn’t have fully priced at this point, a failure to follow the Fed with a 25bp hike would certainly undermine the peso.”