Mexico’s central bank is expected to raise borrowing costs more than expected and end the year with the benchmark interest rate at 11%, up from a previous estimate of 10%, as it prioritizes stability over growth, according to economists at Bank of America Corp (BofA).
Banxico, as the central bank is now known, is now expected to implement two consecutive 75 basis point rate hikes in September and November, and then a 50 basis point increase in December, economists Carlos Capistrán and Christian González Rojas wrote on Sunday. in a BofA report after an investor trip to Mexico.
Banxico’s board is meeting this week and all economists surveyed by Bloomberg expect the bank to announce a 75 basis point hike on September 29, taking the rate to 9.25%.
“Our main conclusion is that Mexico continues to prioritize stability over growth,” Capistrán and González Rojas wrote. “On monetary policy, this means that it is very likely that Banxico will continue to raise its rate along with the US.”
Staying in line with the Fed would also prevent the peso from depreciating, further amplifying external price shocks, the BofA economists wrote. The peso is likely to continue to outperform many currencies around the world, they said.
The priority of Mexico’s Ministry of Finance and Public Credit is to keep a tight primary balance and debt-to-GDP ratio under control, while continuing to support national oil producer Pemex with more capitalizations if necessary, according to experts. from BofA.