Mexico Cuts Interest Rates
This won’t appeal to all the blog’s readers, but some will welcome the knowledge. Expect the peso to continue to weaken against the dollar.
Mexico’s IPC rose 0.2% to 20,325.39, the first session in nine that it’s finished higher. The last time the index finished with losses for nine sessions in a row was in the summer of 1998.
Banco de Mexico cut its benchmark interest rate by 50 basis points to 7.75%, in line with market expectations. The central bank last cut its rate in 2006.
“It’s an aggressive cut. Inflation is still on the rise and the currency is almost at historically low, weak levels,” said Rafael de la Fuente, chief economist for Latin America at BNP Paribas. The size of the rate cut “suggests to me a level of determination about the risks facing the economy, and clearly the central bank sees the risks skewed toward lower growth.”
Mexico’s peso on Friday traded at 13.893 against the U.S. dollar, up 0.6% from Thursday’s close and up 2% from Wednesday’s all-time low. Win Thin, senior currency strategist at Brown Brothers Harriman, said in a note Friday that the peso is likely to remain in the 13.80-14.33 range in the short term, with greater risk for an upside move because of the country’s rough economic conditions.
The central bank said earlier this month that inflation rose to an annual rate of 6.5% in December, the fastest pace since 2001 as prices for food and energy increased. Third-quarter growth, meanwhile, fell to a five-year low of 1.6%.