Bank of Mexico to diverge from Fed policy in 2023

According to Barclays Plc., the policy of the Bank of Mexico (Banxico) is likely to diverge from the Federal Reserve's stance in the coming year, despite holding similar events this week.

On Thursday, Mexico's central bank plans to raise its interest rate by 0.5% to 10.50%, analysts at Barclays said. A similar increase is expected from the Fed on Wednesday. It is assumed that in February, the rate hike in Mexico will be 0.25%. It is likely to be less than the next 0.5% increase from the Fed, expected on February 1. 

In November, the central bank of Mexico raised the interest rate to a record high of 10%. Board members are currently considering a possible slowdown in the pace of interest rate tightening, discussing the timeliness of this measure. According to Jonathan Heath, board member of Banxico, the central bank may continue to raise rates even if the pace could start to slow down. He also added that this is due to the possible approaching end of the tightening cycle. 

Barclays’s analysts believe that lower core inflation is one of the main factors that could help slow the pace of interest rate hikes by Mexico's central bank, as well as contribute to the decoupling from the Fed. They also noted that, in their opinion, the peak of inflation was reached in the first weeks of November. Taking into account the latest economic data for Mexico, core price growth accelerated to 8.51% compared to the same period last year. Prices have been rising for 24 months in a row, but the figure was slightly below the forecast of 8.58%.