Banxico to raise rates just after the Fed?

Banxico decided to keep its policy rate unchanged at 3.00%. The press release keeps a neutral tone and the balance of risks for global growth and inflation remains unchanged from the previous meeting. The meeting minutes will be important to confirm the external and local conditions of the economy and support the view that Banxico is prepared to raise rates just after the Fed.

Heightened volatility in markets demands a prudent monetary policy stance. Long-term rates remained unchanged despite the increase in short- and medium-term rates, and the board acknowledged that volatility in markets has grown incrementally in recent days, without discarding a further deterioration due to the uncertainty around the timing of the Fed tightening. Banxico explains that it is necessary to consolidate the recent efforts in the fiscal scope and adjust opportunely the monetary policy stance in order to maintain confidence in Mexico's economy and the risk premia at low levels.

"Ultimately, financial conditions should trigger the tightening. The statement from the board confirms our call that most likely they will react to the upcoming Fed's move, and thereafter we continue to expect them to increase the overnight interest rate in the next meeting (September 21), as long as the Fed also starts to hike in the previous days", says Barclays.
Pressures from the domestic economy dynamics are muted. The press release mentioned that growth continues to moderate, with investments and exports decelerating, whereas consumption has picked up pace some, but mainly due to the stabilization of inflation. In that regard, the central bank says that the effects from a weaker currency in domestic inflation are quite contained, which then points to a positive balance of risks for inflation

"Neither growth nor the inflation outlook would require a tightening of interest rates already in this quarter, should the contained FX pass-thru assumption stand. That said, any move from Banxico would be aimed at stabilizing financial conditions following a liftoff in Fed policy rates", added Barclays.