Banxico, Mexico’s central bank, announced its latest interest rate decision on Thursday, March 21, opting for a rate cut for the first time since 2021. Despite this move, the USD/MXN exchange rate saw minimal reaction. Analysts at Rabobank provide insights into the future of this currency pair.
Anticipated support remains firm at 16.60
On March 21, Banxico reduced the overnight policy rate by 25 basis points to 11.00%. Notably, this decision revealed a split vote of 4 to 1, with Irene Espinosa advocating for no change. Although inflation forecasts saw minimal adjustments, with a slight upward revision for the 2024 headline CPI forecast, rising from 3.5% to 3.6%, the general trend is clear: as inflation increases, interest rates decline.
Rabobank’s year-end policy rate forecast remains steady at 9.50%, with the expectation of 25 basis point cuts at each meeting. Previously, the forecast anticipated a potential increase to 50 basis points in the fourth quarter.
The USD/MXN exchange rate exhibited limited movement in response to the rate decision, mainly because the market had already priced in the expected outcome. Rabobank continues to view 16.60 as a crucial support level, suggesting that significant weakness in the MXN is improbable given the current favourable interest rate differential.