Neutral Banxico

Mexico inflation has been consistently good. Seasonality will eventually catch up between October and November. Data usually shows a catch up into the start of the school year and ahead of the year-end shopping season. 

"Meanwhile, it is estimated that the one-off impact of the reforms implemented earlier this year may have had a lasting downward effect at a tune of 50-75bp on the headline. Still, even after reducing this rebate, headline remains below 3.5%. Benign price behavior should keep Banxico from tightening at least until early next year", says RBC capital markets.

Governor Carstens was confirmed by an overwhelming support to stay for an additional six year term until 2021. It was unsure about this outcome as Carstens did express interest in the top job at the IMF and perhaps alternative careers thereafter. The main implication of the re-appointment might be additional support for the ongoing stance. 

The policy mix is currently of low real interest rates and a weaker peso. Meanwhile, the government is seeking to tighten fiscal policy to offset large oil revenue shortfalls. This was again emphasized in the outline of the 2016 budget. 

"This far in 2015, it appears that exports and consumer spending have been the main growth engines. A weaker peso, low interest rates, and a recovery in the US are helping offset the negative impact of low oil revenues and consequently fiscal tightening", added RBC capital markets.