Mexico Rates Seen Steady Until 2012

RBC does not expect Banxico to tighten Mexico’s monetary policy rate, currently at 4.50%, until late 2012. “Given uncertainty surrounding whether the large amount of capital flows into EM is temporary or permanent, Banxico is likely to proceed very cautiously in its future decisions and to gauge potential market reactions to these moves,” RBC says. It adds that when Banxico does eventually tighten, it will do so gradually, in 25bp increments. Meanwhile, Morgan Stanley says Banxico could resort to chopping the rate this year. “We suspect that the central bank isn’t ready to ease, though we believe that the next move is more likely to be a rate cut rather than a hike . . . and thus we are removing any tightening from our forecast horizon,” it says.