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On February 21, Mexico's central bank announced that it will offer up to $20 billion in forex hedges, starting with a first auction of up to $1 billion on March 6. With the new measures the central bank aims to support the peso without using FX-reserves.
The peso has been under depreciation pressure since the start of the year on Trump’s protectionist policy plans. FX interventions early in the year failed to have an effect. The central bank hiked it’s key rate already substantially to curd the peso’s depreciation. However, further rate hikes would mean an additional burden for the Mexican economy that is suffering most from the US-protectionist policy stance.
These new measures by the Mexican central bank enhances it’s monetary policy toolkit and the set of instruments to support the Mexican peso. The instruments will be offered to local banks and credit institutions and can pass hedges of the same kind over to market participants. More information will be made available before the first auction. Banxico said it will renew the total of the maturities of these operations as long as the FX commission considers them necessary.
The peso gained 2 percent against the USD as an immediate reaction. USD/MXN was trading at 19.93 at the time of writing, edging slightly higher on the day, breaking two consecutive sessions on downside.
