Continue to spread the war between Russia and Ukrainean inflation that takes time to be contained and a possible Covid-19 outbreakare some of the factors that will be influencing the direction of central bank monetary policy decisions in the coming months.
In an interview for The Economist, Cristina Morales, Director of Investments and Analysis at Valmexestimated that in the remainder of the year we will continue to see an upward trend in interest rates in both Mexico and the United States.
“In particular for the next meeting of the United States Federal Reserve It is likely that the increases will be 50 base points, in our estimates we see that in the May meeting the next increase will be 50 base points and then they will be 25 base points to reach the end of the year at 2.5 percent, “he explained.
“And in Bank of Mexico (Banxico) we also expect that in the next meeting the increase will be 50 basis points and then have increases of 25 basis points in the rest of the meetings of the year with which the rate would close 2022 at 8.25 percent “.
For your part Luis Gonzali, VP and co-chief investment officer of Franklin Templeton Mexico added that although long-term rates had already been rising since last year, with regard to short-term rates, the consensus is that they will continue to rise.
“We think that Banxico could end the year between 8 and 9%, which could make long-term rates rise a little more, in the case of the United States we could see the same line and close the year at 2.5 percent”, Indian.
“We must remember that the rates that move the economy are not short-term but long-term, so if what the FED wants is to cool down the economy to lower inflation, it will have to be very active in the long-term curve. ”.
Additionally, Alejandro Saldaña, Chief Economist of Grupo Financiero Bx+agrees that in order to combat the rise in prices, the Central Banks will implement a more aggressive monetary tightening, including the Banxicowhose interest rate is expected to end this year at 8 percent.
The increase in interest rates, in turn, will lead to a lower economic recovery, by making financing for private consumption and investment more expensive.
Inflation
With regard to the trajectory that inflation will have this year, specialists believe that it will go down, however, it will not be enough to reach Banxico’s objective (3%).
“Inflation estimates for the end of this year are being adjusted, a very gradual downward trajectory is expected, we estimate for the end of the year inflation in Mexico will be 6.42%, even for the following year the estimates are also still higher than objective of 3 percent”, indicated the director of Investments and Analysis of Valmex.
Likewise, the co-director of investments at Franklin Templeton believes that we will still be seeing a few more months of inflation at high levels, above all because there is no clarity about the course of the war and the control of the pandemic in china.
The chief economist of Grupo Financiero Bx+ added that the rise in the prices of raw materials and other supplies worldwide is obstructing economic activity and the direction of inflation, which they estimate will be 5.5% at the end of 2022.
Economic growth
Finally, at Valmex they estimate that the country’s economy will be facing challenges where, in addition to seeking to contain inflation, the Covid-19 It is not completely controlled and important outbreaks continue to be registered, which is why they forecast that economic growth for the end of the year will be 1.6 percent. “The economy will return to its pre-pandemic levels during the second half of 2023.”
Luis Gonzali added that the risks for economic growth are biased downwards, since the outlook is still unclear, since it is difficult to estimate the duration of the armed conflict and its final economic consequences.
The most optimistic that was 3% has been modified, now we are at 1% and it is possible that it will continue to be revised downwards”.