The Day at a Glance | December 15 2022

*The Central Bank of Mexico will make its monetary policy decision known at 1:00pm Mexico City time.

*The FED slows interest rate increases, but didn´t ease its rhetoric. 

*Industrial production in China surprised to the downside by logging 2.2% annual growth in November. Additionally, retail sales decreased 5.9% annually. 

*The ECB and the Bank of England increased their reference rates in half a percentage. Other central banks like Switzerland, Philippines, Norway and Taiwan also increased rates between 12.5bp and 50bp on Thursday.

Economic environment

Monetary policy. The Federal Reserve eased its increasing rates cycle by carrying out a 50bp hike, in line with market expectations; the hike is this year´s seventh increase and took the interest rate to 4.25%-4.50%. However, members of the committee used their tools to point out that the increasing rates cycle will continue in efforts to ensure that inflation will return to the central bank´s 2.0% target level. In this sense, they adjusted their 2023 reference rate forecast upwards from 4.6% to 5.1%, which implies additional hikes. Furthermore, Chair of the FED, Jerome Powell, commented on the need to see a greater slowdown in inflation to ensure that no more monetary adjustments are necessary. Lastly, he favored an interest rate level that would lead the economy to log said slowdown. We believe it´s highly likely that a 50bp increase will be carried out in February; and a 25bp hike in March.

In a week focused on monetary policy decisions, Banxico is next in line; we expect the Central Bank of Mexico to increase its reference rate in 50bp and set it at a new all-time high 10.5%. The Governing Board has eased its strict rhetoric in its last statements, pointing towards the fact that it´s approaching a terminal rate – along with a disengagement with the FED. Moreover, the recent slowdown in inflation gives the Governing Board more of an argument to carry out more moderate interest rate hikes. However, rate increases will continue during the first quarter of 2023. Because of this, market players must pay attention to the central bank´s press release, as well as its meeting minutes, which will be made public on January 5^th. These documents will give greater clarity regarding future interest rates.