Mexico Leaves Rates Untouched

Mexico’s Banxico has left the monetary policy rate unchanged at 4.50%, in line with market expectations. Goldman Sachs expects the central bank to keep the policy rate unchanged at 4.50% until the end of 2010. Depending on how firm and broad based the recovery turns out to be, the shop believes Banxico could initiate a preemptive rate normalization cycle late in Q1 2011 through moderate 25bp monthly rate hikes for 100bp total, pushing the policy rate to 5.50% by the end of 2011. Barclays also thinks Banxico will keep the rates on hold for the rest of this year and begin normalizing them in 2011.