MXN: Trading under pressure - BBH

Research Team at BBH notes that the Mexican peso remained under pressure and made a new all-time low near 21.62 yesterday.  

Key Quotes

“News that former Finance Minister Videgaray was appointed Foreign Minister had little impact.  Inflation is already above the 3% target, and the pass-through from the weak peso will add to the rising price pressures.  So too will the announced hike in gasoline prices.  Banco de Mexico doesn’t meet until February 9.  While Governor Carstens has said he does not like to move intra-meeting, his hand will likely be forced if peso weakness continues.”

“Banxico moved intra-meeting with a 50 bp hike to 3.75% last February when the peso was weakening from 18 to around 19.45.  A sub-20 exchange rate and a 3.75% (now at 5.75%) policy rate seem like an eternity ago.  We note rising risks of discretionary FX intervention.  This wouldn’t be meant to reverse the weakness, but simply to add peso bids into an increasingly one-way market.”