Some Say Banxico Has Done Too Much in Bid to Support the Peso, Others Too Little Jude Webber - The Financial Times
go to original December 16, 2016

The peso’s real effective exchange rate is the weakest since the Tequila Crisis two decades ago (FT)

Hammered to historic lows after Donald Trump’s presidential victory, Mexico’s peso earned a breather on Thursday after the Bank of Mexico responded to growing global risks by delivering its fifth 50 basis points rise of 2016. On top of a 25bp increase last December, five rises this year have taken the country’s key lending rate to 5.75 per cent.

But despite a whopping 275bp increase in interest rates since this time last year, the peso’s real effective exchange rate is the weakest since the Tequila Crisis two decades ago.

“The central bank is waging an unofficial battle to try to support the currency,” said Andrew Stanners, investment manager at Aberdeen Asset Management. “They’ve been one of the most aggressive central banks in terms of hiking, even at a time when inflation has been below their official target.”

But it appears to be a losing battle. The Mexican currency, trading around 20.3 to the dollar, remains wobbly and vulnerable and shows no signs yet of recovering to below 20. What is more, analysts are divided about whether Banxico has increased rates too much, or too little.

Read the rest at The Financial Times

Related: Mexico’s Trump-Fueled Rout Belies Latin America Markets Bonanza (Bloomberg)

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