Mexican inflation unlikely to have rebounded in October, central bank likely to hike rate next week

The Mexican peso came under pressure after the recently elected President Andres Manuel Lopez Obrador last week cancelled the construction of a new airport, thus leading to considerable uncertainty for investors.

The softness in peso does not come at a good moment for the Mexican central bank, as the pace of inflation rose towards 5 percent in the past months, rather than easing towards the inflation target of 3 percent as the central bank had hoped, noted Commerzbank in a research report. The inflation data for the month of October, which is set to be released today, is expected to illustrate that inflation has not rebounded much in the month.

Consensus expectations are for a change of 4.9 percent year-on-year. The peso softness raises inflation pressure, especially as the loss of investor confidence entails the risk that the peso softness might last longer.

“There is a lot to suggest that the central bank will hike its key rate from currently 7.75% to then 8.0% next week. Even if a credible monetary policy is principally positive, the damage that AMLO has caused cannot be undone by the central bank”, added Commerzbank.