Mexico Tightening Seen Nearing End

Last week’s 25bp rate hike to 8.25% in Mexico, accompanied by a more dovish message, signals an end is near to the hawkish phase, say analysts. “The tightening cycle may be over,” says Lehman. “We still think that they may need to hike once more before year-end if inflation continues to surprise to the upside, precluding the anchoring of inflation expectations, but this decision will be highly dependent on new data.” A recently revised inflation projection and declining global commodities gives room to pause at following meetings, the shop adds. Goldman Sachs meanwhile predicts that after an October 25bp rise, Banxico will keep the TdF at 8.50% until Q4 2009. “If by then inflation declines toward or below the projected path, then there is scope for Banxico cutting the TdF twice by 25bp per meeting, to 8.00% by December 2009,” says Goldman, echoing a previous forecast. Out on a limb is Credit Suisse, which calls 8.25% as the top. “This was the third consecutive 25bp monthly rise, but it is likely to be the last one in this cycle,” says the shop. “An overnight rate of 8.25% seems to be high enough for inflation to be within the bank’s projected path over the 2-year policy horizon,” it adds. Barclays also expects the rate to be left unchanged for some months. “We might be seeing the end of the hike cycle,” says Rodrigo Valdes, the shop’s chief economist for LatAm.