Mexican Peso: Why Banxico’s rate cut leaves the Peso exposed – ING

The Peso is vulnerable to external risks, making a rise in USD/MXN above 19 more likely than not, argues Chris Turner at ING. His assessment follows Banxico’s surprise 3-2 vote to lower its policy rate to 6.25%, which reduced the Banxico-Fed spread to 225bp, its lowest in decades. Turner notes that Banxico is prioritising Mexico’s weak growth and negative output gap, while showing limited concern over inflation arising from a weaker Peso.

Is Banxico’s Easing Leaving the Mexican Peso Exposed?

"In a surprise move, Banxico voted 3-2 yesterday to cut its policy rate to 6.25%. This narrows the Banxico-Fed policy spread to a mere 225bp – the lowest in decades."

"Banxico is clearly focused on weak growth in Mexico and the negative output gap. It is not worried about the weaker peso contributing to higher inflation, given its view that pricing power for the consumer sector is very weak."

"In a world where central banks are tightening to ride out the inflation hump, Banxico really stands out now."

"Its position leaves the peso very vulnerable to any pick-up in external risk and USD/MXN pushing above 19 seems more likely than not."

"Banxico happy to let the peso drop."

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