End of the bullish cycle is near: analysts

The end of the rate hike cycle in Mexico is near but it will continue to reflect the path of the Fed, agreed analysts from Monex, the international consultancies Oxford Economics and Pantheon Macroeconomics and the investment bank Goldman Sachs.

According to them, the signal issued by the Banco de México Governing Board is that they will increase the rate again in the decision scheduled for February 9, which will be the first in 2023.

Two of the strategists expect a 50 basis point increase in the next announcement, those of Monex, Goldman Sachs and Pantheon Macroeconomics. If they are correct, the final rate of the bullish cycle that began in June 2021 will be 11 percent.

They also agree that the indication of the forward guidance in the statement is that they could enter a pause while they analyze the evolution of inflation, core inflation, the lagged effect of accumulated rate hikes and the price of commodities.

While Oxford Economics and Pantheon Macroeconomics forecast that the increase announced in the forward-looking guide could be even more moderate than the current one, that is, 25 basis points.

The nuance comes in the pressure that the Fed would exert with its next announcements.

In an analysis, senior Oxford economist Joan Domene considered that by raising the rate by a quarter point during February, the Governing Board would leave room for an additional quarter point hike should the Fed push further increases. .

We do not rule out that additional increases in the United States add pressure to Banco de México to extend the cycle of increases between 25 base points and an additional 50,” he highlighted.

The deputy director of economic analysis at Monex, Janneth Quiroz, clarified that it will be seen more clearly in the minutes of this announcement if a discussion has been presented in the Governing Board to end the increases. The disclosure of the aforementioned minute is scheduled for next January 5th.

restrictive policy will continue

Experts from Monex and Pantheon Macroeconomics estimate that interest rate cuts will take place as of the third quarter of 2023.

Janneth Quiroz explained that even if the rate increases are qualified and even if a cut is confirmed in 2023, monetary policy will remain on restrictive ground.

As long as the ex ante real rate remains above 3 or 4%, monetary policy will remain in restrictive territory, as it has been since the September decision, when they brought the nominal rate to 9.25 percent.

The ex ante real rate is the difference between the nominal rate and the inflation expectation for the next 12 months. Currently, with the rate at 10.50% and inflation expectations at 5.01%, they leave the real rate at 5.49%, the second highest of Latin American peers, below that of Brazil, he noted.

This real rate could be higher if inflation expectations continue to adjust downward. That trend is what the Governing Board should expect to assess the efficiency of its monetary policy, Quiroz stressed.

The economist for Latin America at Goldman Sachs, Alberto Ramos, specified that the upward revision in core inflation expectations, as well as the forecast of a recovering economic activity, justify a more aggressive and restrictive monetary stance.

A higher increase is necessary

From London, the senior economist at Pantheon Macroeconomics, Andrés Abadía, qualified that the decision and the less aggressive tone of the statement are consistent with his expectation of a “final and unnecessary increase of 25 additional points in February.”

If this is the case, the terminal rate of the bullish cycle will be located at 10.75 percent. In this scenario, the Governing Board will already have data on GDP and core inflation.

ymorales@eleconomista.com.mx