Mexico monetary policy minutes: The hawks are stretching their wings

Banxico published the minutes of the monetary policy meeting of July 30.  At that time, the board decided to keep the reference rate unchanged, but the minutes reveal that one member (out of four) had a preference to hike. On the other hand, the macro views were similar to those presented in the latest Quarterly Inflation Report.

 The board member inclined to hiking 25bp argued that by implementing a first rate increase, provided that a hiking cycle in the US is imminent, the uncertainty about the evolution of the relative monetary position between Mexico and the US will be reduced. Another member said that this was not advisable due to the current levels of low inflation and moderate growth.

 It seems that the board is likely to decide to hike if additional episodes of strong volatility that could threaten financial stability occur in the near future, as the timing for new economic data and potential revisions of inflation expectations might make it too long to wait in order to make a promptly decision. For this purpose, an extraordinary meeting cannot be ruled out.

"We maintain our call for a first hike in September as the window is still open. The board is sending the signal that they are ready to hike when it will be needed. In our view, this hike will be highly likely as long as a high probability remains of a hike by the Fed in that month and the MXN exacerbates its depreciation trend, affecting the evolution of local rates", says Barclays.