Banxico hiked the interest rate by 25bp just after the Federal Reserve hiked the rate in December. While looking at the current domestic condition in Mexico, hiking the interest rate is not the appropriate step but Banxico justified the hike by saying that not following the Fed risked a disorderly depreciation of the peso that could increase inflation and generate financial instability. It also added that the hiking decision was unanimous and the minutes show that most board members agree that Banxico needs to keep pace with the Fed.

BoFA Merrill believes domestic conditions will eventually outweigh the Fed, making Banxico separate from it. It also expects the Fed to hike by 25bp in June, September and December, while Banxico to hike by 25bp in June and September only.