Consumer inflation in the United States, which reached its highest level in 31 years, 6.2%, added pressure on the Federal Reserve to anticipate the increase in its interest rate, warned Invex chief economist Ricardo Aguilar Abe.
“If this trend of pressure on inflation continues, the Federal Reserve can tighten its monetary policy by advancing the increase in the rate, which will lead to a significant adjustment in the Stock Exchanges,” he commented.
The specialist also referred that “as few times and more over such high levels, the annual rates of inflation in Mexico and the United States equaled 6.2% in October.”
This context fueled his expectation of a unanimous vote in the monetary decision of the Board of Governors of Banco de México, which will be completed this noon.
As it will be recalled, the rate hikes in June, August and September, of 25 points each, were made in decisions by majority, the first two from three to two and that of September was from four to one.
It will be very relevant that the five members vote to raise the rate in congruence with the constitutional mandate of the Bank of Mexico, which is to preserve the purchasing power of the currency, warned Invex Chief Economist Ricardo Aguilar Abe.
The chief economist for Mexico and Canada at Bank of America Securities, Carlos Capistrán, and the director for Latin America of the Moody’s Analytics consultancy, Alfredo Coutiño, agree with him.
From New York, the chief economist for Mexico and Canada at Bank of America Securities explained that Banco de México will have to raise the rate one by one with the Federal Reserve.
Expectations and dosage
According to the specialist at Moody’s Analytics, the strength of Banxico’s position in the face of inflation and tapering leaves no room for doubt. It should act higher than a quarter point in November.
“It should not only act so that monetary conditions work more normally. It is also to avoid an aggressive reaction on the part of the markets before the beginning of the tapering and the risk that the rate hike in the United States is ahead, “he added.
From Philadelphia he explained that quickly normalizing the monetary stance is “the vaccine” to be in a position to face the contingencies that arise from the markets when the Fed’s reduction in the purchase of securities begins at the end of this month.
Coutiño explained that the base scenario would be a rate hike for this midday of 50 basis points and the optimistic one of 75 points. This would bring the rate to 5.25 or 5.50 percent.
With him agrees the economist for Latin America at Goldman Sachs, Alberto Ramos, who considers that the possibilities of a half-point increase in the rate have risen this Thursday, due to the generalization of inflationary pressures evident in the October data.
Slightly restrictive
The experts from BofA Securities and Goldman Sachs do not rule out that the persistence of inflation and the effect of the United States’ monetary decision will lead Banco de México to bring monetary policy closer to restrictive.
The BofA Securities strategist predicted that rates in Mexico will continue to rise and that there is a possibility that they will reach above 7% in 2023.
While the Goldman Sachs expert estimates that it could reach 6.25 percent.
According to Ramos, the tightening of financial conditions with tapering and the eventual increase in the interest rate in the United States will also push the central bank to move from neutral to a slightly restrictive position.
The monetary announcement of this Thursday will be the penultimate scheduled of the year and will also be the prelude to the last participation of Governor Alejandro Díaz de León in the decisions of the central bank. The official has consistently participated in decisions to raise the rate since June.
Reference-www.eleconomista.com.mx