The Bank of Mexico hiked its overnight rates yesterday by additional 50 basis points to 6.25 percent, as was widely expected. In this cycle, the total tightening has come to 325 basis points. Significantly, the central bank’s statement implies that it sees some of its recent hike of rates as a preventive measure against the transitory acceleration in inflation that might add to less tightening in the future, noted Societe Generale in a research report.
But at this point, there is considerable pressure on the currency and inflation, while the central bank has also admitted that the risk of stronger Fed tightening has increased. All this might add to another 150 basis points of rate hikes in 2017, followed by a further hike of 75 bps in 2018, added Societe Generale. The main downside risk to the rate projection is the worsening of growth outlook.
