Banxico’s tightening cycle progressing slowly

Mexico’s central bank hiked interest rates by 25bp, to 4.50%, yesterday but the split vote suggests that the tightening cycle will continue to proceed slowly despite the growing inflation risks. This reinforces our view that the policy rate will continue to rise over the coming months to 5.50% by Q1 2022, with the tightening cycle likely to draw to a close earlier than most investors currently expect.