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21 Apr 2015
Banxico’s next move hinges on the Fed – Scotiabank
FXStreet (Edinburgh) - In the view of Eduardo Suarez, Chief FX Strategist at Scotiabank, the Mexican central bank could follow the Fed in the tightening cycle.
Key Quotes
“Our sense is that Banxico’s message remains that if the Fed were not getting set to hike rates, the central bank would be comfortable still on current policy settings given that although the economy is gaining traction, the output gap is still open”.
“However, given the Fed does appear to be preparing for its rate lit‐off, Banxico is tying its monetary policy to that of its northern neighbour in order to avoid major disruptions in local markets. We still think this means that Banxico will not try to front‐run the Fed, given the difficulty of timing the Fed, and that the local economic rebound may still be fragile, meaning it is not worth taking the risk of tightening unless it is necessary”.
“We continue to look for Banxico’s rate hikes to follow on the heels of the Fed’s, and believe that if MXN’s liquidity were to deteriorate into a 1‐sided market due to anticipation of the Fed’s hike, Banxico would likely increase the size of its USD auctions. Regarding whether the current US$52mn of dollar sales without a minimum price will be extended be‐ yond June, our sense is that it will depend on the FX‐market’s performance, which we in turn expect to depend on Fed talk, and when investors believe the Fed’s lift off will take place”.
Key Quotes
“Our sense is that Banxico’s message remains that if the Fed were not getting set to hike rates, the central bank would be comfortable still on current policy settings given that although the economy is gaining traction, the output gap is still open”.
“However, given the Fed does appear to be preparing for its rate lit‐off, Banxico is tying its monetary policy to that of its northern neighbour in order to avoid major disruptions in local markets. We still think this means that Banxico will not try to front‐run the Fed, given the difficulty of timing the Fed, and that the local economic rebound may still be fragile, meaning it is not worth taking the risk of tightening unless it is necessary”.
“We continue to look for Banxico’s rate hikes to follow on the heels of the Fed’s, and believe that if MXN’s liquidity were to deteriorate into a 1‐sided market due to anticipation of the Fed’s hike, Banxico would likely increase the size of its USD auctions. Regarding whether the current US$52mn of dollar sales without a minimum price will be extended be‐ yond June, our sense is that it will depend on the FX‐market’s performance, which we in turn expect to depend on Fed talk, and when investors believe the Fed’s lift off will take place”.