Mexican Peso: Banxico stance keeps bar high for hikes – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad reports that Banxico left its policy rate at 6.50% for a third consecutive meeting and removed prior guidance to keep it fixed, while stressing it does not need to match expected Federal Reserve hikes. Haddad says the bar for tightening remains high if Mexican inflation follows forecasts, and notes that Mexico’s positive real yields and external backdrop support the Peso despite a less negative US-Mexico rate differential.

Policy hold with supportive MXN backdrop

"As was widely expected, Mexico’s central bank (Banxico) decided unanimously to keep the policy rate unchanged at 6.50% for a third straight meeting yesterday."

"Banxico scrapped its previous guidance to keep the policy rate at 6.50% but cautioned it need not match the Fed’s expected rate increases."

"That suggests the bar for a hike remains high as long as Mexico inflation tracks the bank’s forecast."

"The swaps curve implies nearly 125bps of tightening in the next twelve months."

"Regardless, Mexico’s positive real yields, favorable balance of payments backdrop and energy exposure more than offsets the drag to MXN from less negative US-Mexico rate differentials."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)