Mexico Economics & Strategy. Just checking: our tightening call is still fine
We are presenting a research on Mexico Economics & Strategy by HSBC, which we hope you find useful in reviewing the investment potential of Baja California Sur, Mexico. Below is published an abstract from the research, please see the attached document for the complete overview of the findings.
Just checking: tightening call is fine
>> Fears over growth and a benign inflation path have prompted us to check on our monetary policy call
>> We stick with our base case of tightening starting in March 2012, with 3.6%/3.5% inflation for 2011/12 and GDP growth of 4.1% for both years, but caution a slowdown could see tightening delayed
>> We see good risk/reward in receiving 1Y1Y TIIE forward for a delayed hike scenario
Recent global concerns have lurched from inflation to economic growth. In particular, inflation fears in Mexico have been dissipating over the course of the year, as inflation has shown a consistent downward trend, reaching an annual rate of 3.2% in May. This has triggered private analysts to revise down its inflation projections through the year. The latest Banxico survey shows that consensus expects inflation to close this year at 3.56%, below the expectation of 3.91% envisaged in January.
Given this favourable inflation scenario, the recent fears on the US economic slowdown and its impact on the Mexican economy have worsened the balance of risks for economic growth. As a result, GDP expectations for this have stabilized recently, showing a marginal downward revision to 4.31% in June from 4.37% in May. This environment has prompted the central bank to express a more dovish tone in the accompanying communiqué of its latest monetary policy announcement in May.
Download the whole report in pdf: Monetary policy Mexico, July 5, 2011