The Bank of Mexico, yesterday, followed the Fed action and hiked its key interest rate. The Mexican central bank hiked its rate by a 50 basis points to 5.75 percent. Expectations were for the Banxico to raise rates by 25 basis points. The Bank of Mexico officials intend to offset the risk of inflation with this step. But a reduction of 50 basis points also reflects that the officials are quite worried regarding the sharp decline of Mexican peso and capital outflow.
The central bank governor Agustin Carstens has reiterated that he would follow the U.S. Fed’s rate steps. But for Mexico, just like the majority of emerging markets that is wishful thinking. Hence Carstens and his colleagues have attempted to take a clear stance, noted Commerzbank in a research report.
Investors who might have been concerned about the future attractiveness of the Mexican peso were meant to know that the Banxico is prepared to guarantee an attractive carry. Following the announcement of a rate cut, peso strengthened from levels around 20.6 to just above 20.3 against the U.S. dollar.
