A Mexican Standoff: Banxico vs. The Fed

8/6/15 Forbes
5504964078_df874cacb5_zBanxico, the Mexican central bank, is widely expected to raise interest rates alongside the Federal Reserve in the upcoming hiking cycle to avoid further weakness in the Peso (MXN).  There was even speculation that Banxico would preemptively hike during last week’s policy meeting. Policymakers ended up keep rates unchanged at an all-time low of 3.0%, but the central bank did take steps to buoy MXN.

The central bank increased the amount of dollars to be auctioned daily from $52 million to $200 million. They also reduced the amount MXN has to weaken for the central bank to sell an additional $200 million from 1.5% to 1%. MXN reacted immediately to the announcement, jumping 1.2% against USD, which is a notable move for the world’s most traded EM currency.

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