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The Banxico committee is schedule to meet on policy rates on 17th December, a day after U.S. Fed meeting. The central bank is expected to hike its bank rates by following the Fed.
The Fed rate hike will increase the interest rate difference in favor of the U.S., as a result, Mexico will face massive capital outflow. Thought the lower inflation rate has given scope for retaining current bank rates, but the interest rate differential will force the Banxico to hike bank rate.
"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", argues Nordea bank.
