Banxico rate cut puts Mexican Peso at risk – ING

Banxico cut its policy rate to 6.25%. ING’s Chris Turner highlights the surprise 3-2 vote, which reduced the Banxico-Fed spread to 225bp, its lowest in decades. According to Turner, weak Mexican growth and a negative output gap dominate Banxico’s thinking, while Peso-driven inflation is of limited concern. He argues that this approach leaves the Peso vulnerable to external risk, with USD/MXN more likely than not to rise above 19.

6.25% Banxico rate puts Mexican Peso under pressure

"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.)