Aggressive Monetary Tightening Ahead

The BCC's decision to hold rates in January 2011 puts it behind the curve, meaning more aggressive and front-loaded monetary policy is needed over the coming months. As such, we have revised up our end-2011 and end-2012 interest rate forecasts to 5.50% and 5.75%, from 4.25% and 4.5% respectively. Ongoing currency intervention continues to cloud the policy outlook, but the bank is likely to remain focused on inflation rather than peso trajectory.

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