Banxico’s aggressive action caused the MXN to appreciate in February. Looking ahead, the MUFG Bank economists don’t see much scope for further strengthening.
Banxico will promote more moderate increases of 25 basis points in the next meetings
“Higher rates for longer will keep the MXN attractive as a transfer currency, which will help explain the greater appreciation of the peso registered during February. However, we do not see much room for further strengthening, assuming that Banxico will promote more moderate increases of 25 basis points in the next meetings. Later this year, when we see clear signs of a more significant slowdown in inflation, we expect Banxico to start cutting its rate.”
“We maintain our view that two major risk factors could contribute to some weakening of the MXN in the future. First, the slowdown/recession in the US could affect inflows into Mexico from trade, direct investment and wage remittances Second, López Obrador’s nationalist policies, especially in the energy sector, could discourage private investment However, the MXN could continue to be supported by investment and exports from companies that relocate global supply chains to Mexico.”
“USD/MXN is seen in the first quarter of 2023 at 18.40. In the second quarter of 2023 at 18.60. For the third we expect 18.80 and in the fourth an increase to 19.00″
Source: Fx Street
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