Banxico Preview: Hawks but no hikes - Rabobank

Analysts at Rabobank fully expect Banxico to leave the policy rate unchanged at 7% today which will mark the third consecutive ‘no-change’ decision.

Key Quotes

“When we last wrote a preview the market was pricing in a decent chance of a rate cut by year-end and now the front-end of the OIS curve is pricing in a small chance of a rate hike.”

“This shift is unsurprising given the markedly more hawkish tone evident from the Minutes.”

“That said, our base case is for Banxico to remain on hold until it begins easing in 2018 H2.”

“This will be the last Banxico decision headed by Governor Carstens.”

“In our previous Banxico Preview we outlined our view that demand for carry would continue to provide support for MXN until NAFTA tensions rise.”

“The fourth round of NAFTA negotiations was by far the most difficult yet. There are clear obstacles that need to be navigated during the extended fifth round of negotiations scheduled for 15-21st November in Mexico City.”

“Our base case remains that NAFTA will be renegotiated but volatility is likely to push USD/MXN above 20 before year-end.”