Wednesday , March 3 2021

"Sing four winds", a walk around Banxico



In the last three months, the perspectives on reference interest rates Bank of Mexico (Banxico) radically changed. As early as August, economic analysts in various surveys have indicated that the indicator will remain unheeded by the end of the year and will fall in 2019. Today, the forecast of the increase is practically unanimous.

Average market participants expect Bank of Mexico she will resort to her arsenal of monetary policy instruments that would lead her to the forecast of an increase in the reference rate in her statement today, which is expected to be announced at 13:00 in Mexico City.

Out of the 27 experts they have studied Bloomberg, 20 argued that Banxico will raise the benchmark rate by 25 basis points, another expects an increase to 50 basis points, while six foresee that it will remain stationary.

On the same line, in forward marketThere is a probability of 81.2 percent that the central institute will increase by a quarter.

Possible reasons for increasing Banxico

Among the factors that can influence the decision Bank of Mexico to increase the cost of money, is the behavior of inflation.

"The degree of risk to inflation has deteriorated," said former deputy governor Manuel Sánchez González, exclusively for the Bloomberg press program, on "Sonar la Campana", led by Víctor Piz.

The central institute has postponed the convergence of inflation growth several times to 3 percent.

Consumer prices rose by 4.65 percent after the decision Banxico For the last time in the past month, raise your level to find yourself above this level. According to Inegy, in October this year, inflation increased at an annual rate of 4.90 percent.

At the annual level, the inflation dynamics accumulate for 20 consecutive months, which are growing above the maximum permitted margin of the Bank of Mexico, which is 4%.

Other factors that may influence the decision of the Mexican Bank in its release today are related to the rising pressures observed in the exchange rate over the past few weeks.

The central institute reported that the interbank dollar closed on Wednesday at 20.44 units, above the figure found on June 21, when an increase in the cost of money by 25 basis points was announced. At that date, the exchange rate on the wholesale market amounted to 20.25 units.

If the price of the dollar is still high, inflationary pressures could arise. However, this behavior does not yet create the second-tier effect on pricing in the economy, according to Former Deputy Governor Manuel Sánchez González.

Finally, the factor that also supports the possibility of raising the reference interest rate on today's trading day by Banxico is linked to the expected behavior in this case of the Federal Reserve (Fed).

The Fed raised the money costs in June, just like Banxico. In September, the federal federation increased again, a situation that was not followed by the central bank of Mexico.

While the prevailing market stance suggests that the Fed will once again increase its reference rate at a December next year session. This behavior is difficult for the Mexican bank to run out of, the situation that follows it to follow the Fed's path, at least until the end of the year.

Market expectations still maintain the possibility that the increase in the reference interest rate of Banxico will continue to increase in the short term.

"Although consumer inflation is likely to continue to return to Banxico's goal in the coming months, the recent volatility in Mexican pesos, the result of doubts about the decisions to be taken by the new administration of the newly elected Andres Manuela López Obrador, concerns about the possible transfer to prices, "said Jorge Gordillo, director of analysis CIBanco.

50 points in the view

According to the script greater political uncertainty and deterioration financial variables with both internal and external factors it is possible to increase 50 basis points.

"Local financial conditions have deteriorated. Although external conditions have certainly affected this, we believe that the main factor involves investors who are aware that NAIM's decision was not an isolated action, but a sign of a wider change in the regime," says Sergio Luna, an analyst at Citibanamide. "For Banxico's purposes, we consider it to be more weighty to reflect on financial stability in its decision-making process, and thus a stronger accelerated message by increasing the rate of 50 basis points."

According to investors, the increase can be split. In the futures market, which has already lowered the growth by 25 basis points, it is at the 60% probability that the Mexican Bank will increase its rate by 25 additional points in December and reach 8.25%. In addition, there is a probability of nearly 30 percent that it will reach 8.5 percent by the end of the year, which means that it will increase by 25 basis points in December and by 50 percent more.

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