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Weak Peso See?s Mexico?s Central Bank Holding Key Rate (USD/MXN)

Published: 12 Jul at 5 PM Tags: Dollar, America, USA, Mexico,

During local trade the Banco de Mexico announced its decision to hold the overnight rate at 4 per cent. The result was expected by economists as above-target inflation and a depreciating Peso have worn on Mexico’s economic growth.
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Although economists have lowered growth forecasts for Mexico to their lowest since 2009, the weak Peso severely limits the central bank’s options when it comes to lowering borrowing costs.

One economist with the Goldman Sachs Group observed that policy makers are ‘afraid of losing the anchoring of the currency. The domestic reality is actually more supportive today of rate cuts than two or three months ago. But the external environment is less supportive.’

Yesterday the Peso climbed by 0.7 per cent against the US Dollar but the South American currency has since fallen to 12.8376 Peso per Dollar.

Since Federal Reserve Chairman Ben Bernanke first hinted of the possibility of US easing being reduced the Peso has plummeted from an almost 2-year high, shedding 6.5 per cent.

As industry expert Alberto Bernal states: ‘Bernanke’s words have generated a material depreciation of the Mexican currency. That has tied the hands of Banxico in terms of providing the Mexican economy with additional levels of monetary stimulus.’

This week’s annual inflation data, which showed a slowing from April’s seven-month high of 4.65 to 4.06 in June, has also been wearing on the currency. As has the nation’s growth projections for 2013 being slashed to 2.7 per cent from a previous estimate of 3 per cent.

The Mexican government’s growth forecast now stands at 3.1 per cent following a 0.4 per cent reduction in May.

The central bank’s next rate move is now forecast to occur in November. Economists are expecting that rates will be raised by a quarter-point.

The Mexican Peso is currently trading against the US Dollar in the region of 12.8358 Peso Per Dollar

As of Friday, 12th July 2013, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP USD exchange rate was 1.5107, and GBP MXN exchange rate was 19.3704.
Dominic Lee About Author: (372 Posts)With over ten years experience as an economist – including four years spent as a chief economist with a major currency broker – Dominic has acquired a wealth of knowledge which he uses to forecast market movements. Dominic now works as an independent business advisor and writes for several financial publications.

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