Mexican Peso Rises To Highest Level in 2017 Ahead of Banco de Mexico Interest Rate Decision

The Mexican peso rose 1.65 percent on Wednesday to its highest level in 2017. While the peso was trading above last Friday’s high (19.02) at 1:00 a.m. EST on Wednesday morning, by 3:30 p.m., the USD/MXN rate had dropped down to 18.71985 - the lowest rate for this year.

Today’s surge in the peso comes just one day ahead of Banco de Mexico’s decision on interest rates, scheduled for 1:00 p.m. on Thursday.

Majority of financial analysts are expecting Mexico’s central bank to raise rates by 25 basis points to 6.50 percent during tomorrow’s meeting. However, a sizable number of analysts polled by Reuters also foresee a 50-basis-point increase.

“Seven thought the bank could deliver a half-percentage point hike, while two saw no move.,” said the Reuters report.

Although a majority of polled analysts see only a 25-basis-point increase, the Mexican central bank has hiked rates by 50 basis points in two of its last meetings in February and December, to stem the fall of the peso and get excessive inflation under control.

The peso has recovered most of the losses from the U.S. elections in November as a result of multiple interest rate hikes, as well as a $20 billion USD Forex hedges program by Mexico’s Foreign Exchange Commission, but it’s still not trading under 18.17 (rate before Trump’s election).

Analysts may have different opinions on what Banco de Mexico decides to do tomorrow, but Deputy Governor of Banco de Mexico, Javier Guzman, said at the beginning of this month that a “strong monetary policy is need to avoid second round effects from the recent supply shocks and the unanchoring of long-term inflation expectations.”

Furthermore, the Governing Board of Banco de Mexico said today that it expects the peso to continue rising vs. the USD, when it announced it was increasing its revaluation reserves to 268 million pesos.

Peso photo by Harold Maduro