The Banxico committee is set for a rate lift-off when it meets the day after the FOMC meeting on Thursday next week - its first rate hike in 7 years. A hike in close tandem with the Fed should also hinder the USD/MXN from excessive volatility after the Fed lift-off. Lower USD/MXN is one of the strongest EM FX views in the longer run.

"We expect a rate hike of 25bp to 3.25% when the Banxico committee meets for its last policy meeting of the year on Thursday December 17. The Banxico has for long signalled that they are closely watching the relative monetary policy conditions vs the US, and earlier this year aligned its monetary policy statements to come 1-2 days after the Fed meetings. As we expect the Fed to deliver its first rate hike on December 16 the Banxico is most likely to hike in close tandem instead of waiting to its next meeting on February 4",says Nordea bank.

To hinder excessive capital outflows and the risk of pass-through to inflation from further weakening of the MXN after the Fed lift-off, economist expect the Banxico to hike rates and to keep the rate differential vs the US unchanged. A solid growth outlook, expected to benefit from the pick-up of US and domestic demand in 2016 also contribute to set the right conditions for a rate lift-off.

One argument for the Banxico to wait until the Fed hikes is that inflation has continued falling this year, as a result of, among other things, lower oil prices, and is now running at record lows.

"We expect inflation to remain below the target ceiling throughout the forecast horizon, as there is still slack in the economy which should hinder the build-up of demand-pull pressures on inflation. Low inflation has given the Banxico room to stay on hold, and will most likely imply a gradual normalisation of rates during 2016. We have 3 more hikes of 25bp in our forecast for 2016, with the policy rate hiked to 4.00% by end-2016", added Nordea Bank.