Terminal rate of the Mexican bullish cycle would be 11% and 5% for the US: analysts

The terminal rate of the bullish cycle in Mexico will hit in the first quarter of next year and may be between 11 and 11.50% according to estimates by strategists at the investment fund manager, Franklin Templeton, and Banco Base.

They agree that Banco de México will continue to follow in the footsteps of the Fed, and that the last movement in the rate this year will be 50% in line with what the Federal Open Market Committee of the Fed (FOMC) will give. This means that the rate would close the year at 10.50 percent.

Both central banks will release their last monetary announcement of the year next week, the Fed is scheduled for December 14 and Banxico has the appointment on December 15.

In separate conferences, they projected that Mexico’s rate will remain in double digits even next year and will probably cut it in the third quarter of 2023.

According to the vice president of investments at the fund manager, Luis Gonzali, inflation will still be far from the Bank of Mexico’s punctual goal next year. His forecast is that this year the price escalation will reach 8% and in 2023 it will be 5%.

The Franklin Templeton expert projected that next year there could still be two increases in the Mexican rate of a quarter of a point each. From his perspective, the terminal rate will remain at 11%, but there is a probability that it will rise another 50 points in 2023.

In addition, the Director of Economic and Financial Analysis of Banco Base, Gabriela Siller projected that the annual variation of inflation will remain at 8.1% at the end of this year and next year is expected to moderate to 5.1 percent.

Along the way, he estimated that the terminal rate of the upward cycle could be located at 11.50% next year.

Banco de México’s punctual inflation target is 3% with a permissible range of +/-1 percentage point, so that if these inflation forecasts are achieved, 2023 will be the third consecutive year with inflation outside the target.

In the same conference, the vice president and manager of debt portfolios at Franklin Templeton, Jorge Marmolejo, estimated that it will be until 2024 when inflation in Mexico will once again be within Banxico’s target.

November does not set a trend

Despite the fact that inflation registered an annual growth of 7.8% in November, both experts warned that this is a month whose variation was impacted downwards by the so-called “Good End” offers.

Gonzali recalled that underlying inflation, which excludes from the measurement prices that are usually volatile due to seasonal effects or government administrative decisions, remained under upward pressure. It went from 8.4 to 8.5%, which implies second-order effects. It is a “sticky” inflation.

Deputy Governor Jonathan Heath explained this week “that the data for November is for a single atypical month”, precisely because of the Good End.

He even stressed that the Governing Board will have to wait to see the inflation data for December to put it in context.

Siller, for his part, warned that victory cannot yet be claimed over inflation. It remains to see the data for December and in the best scenario, the price variation could end at 7.7%, she considered.

No uncertainty by Esquivel

Gonzali ruled out that the market is concerned about the next replacement of Gerardo Esquivel on the Board of Governors of Banco de México.

Since he has been the dissident of the Board, his absence will not mark a relevant change in the direction of the decisions, he observed.

Their baseline scenario is that Esquivel will not be re-elected. He considered that among the probable candidates for the position, is Gabriel Yorio, who would provide a very interesting feed for the discussion, but he trusted that they will not remove him from the Treasury where he has played a great role.

ymorales@eleconomista.com.mx