- Banxico will announce its monetary policy decision today at 19:00 GMT.
- Mexico’s central bank is expected to cut interest rates by 25 basis points.
- The Mexican peso could experience volatility with the announcement.
The Mexican Central Bank (Banxico) will announce its monetary policy decision at 19:00 GMT on Thursday. The market expects a cut of 25 basis points (bp), which would put interest rates at 10.5% from the current 10.75%.
Will Banxico surprise with a broader interest rate cut?
Mexico reached an all-time high of 11.25% in its interest rates in April 2023, and kept it at that level until February 2024. In March of this year, Banxico cut its rates by 25 bp to 11%, leaving it unchanged in subsequent meetings in May and June. In August, the entity announced a new 25 bp cut to 10.75%.
While most experts expect a moderate rate cut, others warn that we could see a 50 bp reduction as Banxico could follow the Fed’s recent actions.
According to Chris Turner, forex analyst at ING: “The idea here is that Banxico, like the Fed, could engage in a large precautionary cut now that it has shifted its focus from inflation to growth concerns. Moreover, some see this as a window of opportunity for a large cut before the US election, and an uncertain future for trade policy closes the window for such a large reduction later this year.”
How would a 25 or 50 bp cut affect the Mexican Peso?
The Mexican Peso could suffer a sharp decline if Banxico announces a 50 basis point interest rate cut, causing the USD/MXN to rise towards the psychological zone of 20.00 and above. In case the cut is 25 bps, the Peso’s decline could be much more moderate, as the market has already priced in this decision.
If the Central Bank of Mexico decides not to change its rates, the MXN would strengthen, potentially causing the USD/MXN pair to fall to the 19.00 region or even below.
“We think Banxico could risk a 50bp rate cut today to quickly alleviate high real rates. However, the Mexican Peso would suffer and our near-term bias for USD/MXN is 19.75 and above 20.00 if a 50bp cut is made today,” notes Chris Turner, analyst at ING.
Mexican Peso FAQs
The Mexican Peso is the legal currency of Mexico. The MXN is the most traded currency in Latin America and the third most traded currency in the Americas. The Mexican Peso is the first currency in the world to use the $ sign, prior to the later use of the Dollar. The Mexican Peso or MXN is divided into 100 cents.
Banxico is the Bank of Mexico, the country’s central bank. Created in 1925, it provides the national currency, the MXN, and its primary objective is to preserve its value over time. In addition, the Bank of Mexico manages the country’s international reserves, acts as a lender of last resort to the banking sector, and provides economic and financial advice to the government. Banxico uses the tools and techniques of monetary policy to achieve its objective.
When inflation is high, the value of the Mexican Peso (MXN) tends to decrease. This implies an increase in the cost of living for Mexicans, which affects their ability to invest and save. In general, inflation affects the Mexican economy because Mexico imports a significant amount of final consumer products, such as gas, fuel, food, clothing, etc., and a large amount of production inputs. On the other hand, the higher the inflation and debt, the less attractive the country is for investors.
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, potentially affecting demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, potentially affecting demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
