Banxico's rate hike likely in December

Banxico decided to keep the reference rate unchanged at 3.00%. This was broadly expected by the markets, as the US Federal Reserve also kept its policy rate unchanged. On the other hand, the press release is rather neutral, continuing to highlight moderate domestic growth and the positive outlook for inflation while keeping an eye on the potential effect of the MXN depreciation on inflation and inflation expectations.

Volatility has been persistent, but rates in Mexico are still relative stable. The board acknowledged that financial markets have been under stress and that the MXN has reflected these pressures while local rates have increased only slightly and the net position of foreign investors in local bonds has not decreased.

The outlook of growth and inflation is unchanged. The board mentioned that the labor market is still registering slack conditions while inflation in the FX pass-through has been reflected only in durable goods prices. The board continues to expect the Maxioc's inflation around 3% in 2016, notes Barclays. 

"Although the US Fed unlikely to move until March, core inflation in Mexico could start to accelerate in the coming months, and the one-off effects that pushed inflation down this year will disappear in January 2016.  In that sense, there is a high probability of a hike in December, as inflation will likely pick up and the board would like to keep the reference rate constant in real terms", foresees Barclays.