Global policy rates:Changes to rates and HSBC forecasts [Correction]

In a unanimous decision, Mexico’s central bank raised the monetary policy rate by 25 bps to 6.75%. In our view, the main driver behind thisdecision was the acceleration in headline inflation. Given the inflation backdrop we continue to expect Banxico to hike in tandem with the Fed overthe remainder of 2017. This would take the policy rate to 7.25% by the end of 2017 where we expect it to remain on hold until the end of 2018.

    In South Korea, we now expect the BoK to remain on hold through 2017 (previously expected a cut in Q4) due to the clear shift in focus away frommonetary and towards more active fiscal policy. See Bank of Korea Watch: Hunky-dory, 25 May 2017 for more details.

    In Colombia, we now expect cuts totalling 125 bps in Q2 and Q3 2017 following cooler headline CPI figures. We expect that after the elections,inflation will approach the 4% threshold once again and therefore see rate rises in the second half of 2018, taking the policy rate back to 6.25%.

    The central bank in Chile cut its policy rate by 25 bps at its last meeting. We see rates remaining on hold at 2.50% until mid-2018 as the boardremoved the downward bias it had in place. We expect two 25 bp rate rises in Q3 and Q4 2018 as the output gap begins to close.

    In Peru, a 25bp cut took the policy rate to 4.00%. We see a further 50 bps cut in Q3 2018 on the back of lower inflation. With higher demand andinflation in the second half of 2018, we expect 100 bps worth of rate hikes, taking the policy rate to 4.50% by the end of 2018.