The end of the rate hike cycle is approaching in Mexico. Economists at Commerzbank analyze how Banxico’s stance is set to impact the Peso.
Scope for lower key rates to emerge in Mexico if Fed rate cuts become more apparent towards year-end
“It is not likely to make a fundamental difference for the MXN whether the key rate peaks at 11.25% or 11.5% for now. What is going to be decisive is that Banxico will not permit any doubt in its determination to fight inflation even at the end of the rate hike cycle.”
“At present, all market participants are likely to bet on Banxico being prepared to implement further tightening should surprise upside risks for inflation emerge. That provides support for the Peso.”
“We assume that Banxico will stick to its principally hawkish approach and as a result, we see further appreciation potential for the Peso over the coming months. Nonetheless, scope for lower key rates is also likely to emerge in Mexico if Fed rate cuts become more apparent towards year-end.”