Mexican Peso Appreciates Against US Dollar as Banco de México Hikes Interest Rates

Banco de México surprised a majority of market analysts today by hiking the overnight interbank interest rate by 50 basis points to 5.75 percent. Most economists had forecast only a 25-point hike. The rate hike had a positive effect on the Mexican peso, which appreciated by 21 cents against the greenback (1.01%).

The Mexican central bank said that improved global economic conditions in 2016, as well as an improving labor market, factored into the decision to hike rates:
"During the fourth quarter, while the labor market has continued to improve and there has been a moderate acceleration of wages."
The press release also states that Banco de México followed the lead of the Federal Reserve in the United States, which hiked interest rates yesterday by 25 basis points to 0.75 percent, sending the greenback higher against all major currencies. Additionally, Banco de México left the door open for further rate hikes, citing an anticipated rise in inflation:
"Fiscal policy and monetary policy in the United States has led to a significant appreciation of the of the dollar against virtually all currencies, including those in advanced countries. In the Euro and Japan this phenomenon has mitigated the deflationary fears. This allow us to anticipate greater inflationary pressures at the global level and possibly a less accommodating monetary policy going forward."
At press time, the USD/MXN is hovering around 20.324, which is where the pair was trading before the FED interest rate announcement, yesterday.

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  1. well, it's a win-win decision for them, they have to act to preserve the value of their mexican peso against the dollars, but they have to watch the effects on the other side of their financial system.


  2. It is interesting that the markets do not perceive Trumps presidency, and his apparently hostile attitude towards Mexico, as a threat to the Mexican Peso's stability. It will be interesting to see how this works out.

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  3. Considering the change of presidency in the US it was wise to bolster the value of the Mexican Peso by this rate hike. I'll be watching with interest as this progresses.