Mexico – A tough monetary policy call

We assign a 55-60% probability to the scenario of the central bank of Mexico (Banxico) increasing the policy rate by 25bps to 8.25% and a 40-45% probability to the scenario of Banxico keeping the policy rate unchanged at 8.00%. In either case, the tone of the communique will remain ‘hawkish’, effectively leaving the door wide open for further hikes. This is one of those meetings that we analysts dread because it is a close call. Our initial thought was that Banxico would keep the policy rate unchanged at 8.00% (see the below section for the reasons to hike or to hold). However, we changed our call after the government announced a minimum wage hike of 15% for 2019 (including a 100% increase in the northern border) and hinted that similar above-inflation increases wou ld be the norm in coming years.