Market Wire - Minutes suggest support is beginning to ebb for Banxico rate hikes

Karthik Sankaran, Senior Market Strategist, karthik.sankaran@corpay.com

A record of a March 24 meeting in which Mexico’s central bank unanimously voted to increase rates by 50 basis points to 6.5 percent suggests strong concerns about inflationary pressures will continue to dominate the bank’s reaction function. But with one member expressing misgivings about growth and an overly aggressive pace of rate hikes, the unity behind that decision might not be replicated.

Gerardo Esquivel delivered a mild surprise to markets at the time by rejoining the majority, after previously favouring smaller rate hikes. The minutes indicate one member (most likely him) with misgivings preferring a “moderate and gradual” rather than “excessively restrictive” pace of future increases. However, other members emphasized the central importance of maintaining the bank’s credibility in the fight against inflation.

Data released earlier today confirmed an acceleration of price pressures, with the core measure rising 6.78 percent year-on-year in the second half of March, a 21-year high that is well above the bank’s 3.0 percent target.

With the central bank’s new head Victoria Rodriguez voting with the majority, the minutes should help allay worries about undue political influence - but this could be tempered by the likely reemergence of a dovish dissenter at future meetings.

The peso was little changed after the release, and the exchange rate is holding near 20 per US dollar, driven by the interaction of US-Mexico rate spreads and global risk appetite.