The Mexican peso had a weak performance vs. the USD yesterday and ended the day losing over 1%. As expected, the central bank of Mexico (Banxico), kept unchanged the overnight rate at 3% but the communiqué that followed the announcement shows that the expected economic performance in Mexico, in the assessment of the central bank, has been somewhat weak. Banxico also mentions how exports have been slower in the past months and how lower oil prices are taking a toll on industrial production via the mining subcomponents of IP. Finally, Banxico clearly stated how integrated the Mexican economy is to the global economic cycle and how a withdrawal stimulus in the US could impact the MXN performance. According to Commerzbank managing a cyclically weaker economy amid the potential beginning of a tightening cycle in the US will be Banxico’s main variables to assess in the next months. Indeed not an easy balancing act prompting questions of how soon can the CB deliver a rate hike given the risks to growth that are now in the horizon. “We ultimately think that these dynamics should translate into a Banxico waiting until the last permissible moment (vis-à-vis the US Fed) to deliver a rate hike as to not unnecessarily hurt the ongoing economic recovery”, added Commerzbank. 

The material has been provided by InstaForex Company –