Mexican Peso: Banxico cut leaves Peso vulnerable – ING

Chris Turner at ING highlights Banxico’s surprise 3-2 vote to cut its policy rate to 6.25%, narrowing the Banxico-Fed spread to 225bp, the lowest in decades. He notes Banxico’s focus on weak Mexican growth and a negative output gap, with limited concern about Peso-driven inflation. Turner argues this stance leaves the Peso exposed to external risk, making a move in USD/MXN above 19 more likely than not.

Banxico easing pressures Mexican Peso

"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.)