Home Research Goldman Sachs Goldman Sachs Sees Banxico Staying the Course, Raising Policy Rate 25bps to 5.25%

Goldman Sachs Sees Banxico Staying the Course, Raising Policy Rate 25bps to 5.25%

Goldman Sachs Sees Banxico Staying the Course, Raising Policy Rate 25bps to 5.25%
Banco de Mexico

NEW YORK — Banco de Mexico has been patiently raising rates four times this year, and according to Goldman Sachs, that will most likely be the case again today when its board of directors announces the last monetary decision of 2021.

In a report to clients the New York-based bank sees the monetary authority poised to increase rate by 25bps to 5.25% as inflation reached in November its highest level in more than 20 years. “Given recent domestic and external macro-financial developments, we expect the MPC to follow up with another 25bp rate hike to 5.25%,” economists Alberto Ramos, Sergio Armella and Daniel Moreno said in the report dated December 10.

And most analysts share Goldman Sachs’ view: According to a survey by Reuters, 14 of 17 analysts consulted expect the central bank, or Banxico, to increase the funding rate by 25bps. Only three participants projected that the monetary authority will hike 50bps to 5.50%.

Mexico’s inflation rose in November more than expected reaching 7.37%, its highest record since January 2001, from 6.24% in October, according to Trading Economics. The prices of food and non-alcoholic beverages increased 10.8%, transportation 9.51% and furniture and household maintenance another 7.06%, giving clear signals of rising pressures in price formation of Latin America’s second-largest economy. Banxico, an inflation-target central bank, has an official inflation goal of 3 +/- 1%.

Source: Goldman Sachs Latin America report, December 10.

A Surprise in the Making

The rising prices may lead to a surprise, and Goldman Sachs sees also the possibility of a sharper rate increase. Given the higher than expected October inflation print and upward move in inflation expectations, “we assess a 45% probability of a bolder +50bp move, or up to two dissenting votes for a 50bp in case of a 25bp hike,” the analysts said in a report.

Others agreed. Fitch Solutions has a base case scenario of 50bps hike “due to the risk that recent upside inflation surprises de-anchor inflation expectations. We forecast inflation will likely end 2021 at 7.50%, up from 7.00% previously,” analysts said in note to clients December 13.

Mexico’s central bank announces its monetary decision at 2pm EDT.

Also relevant:
* Bank Of Mexico Hikes Rate Again As Inflation Spirals
* Banxico Raises Rate for Third Straight Meeting to 4.75% Amid Jump in Prices: Bloomberg

To contact journalist of this story:
Email: jearrioja@zignox.com


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