Mexico central bank seen holding steady despite peso slump

2/4/2016 Reuters

peso by Guanatos GwynFeb 4 Mexico’s central bank is expected to hold borrowing costs steady on Thursday after inflation expectations improved despite a deep slump in the peso last month.

All 15 analysts surveyed last week by Reuters said they expect the central bank to hold its key lending rate at 3.25 percent.

The Banco de Mexico hiked its key rate in December for the first time in seven years from a record low of 3 percent, hoping to support the peso after a rate increase by the U.S. Federal Reserve threatened to sap demand for emerging market assets.

The Mexican central bank decision comes after the U.S. Federal Reserve kept borrowing costs unchanged last week. Mexican policymakers have suggested they could closely follow the moves of the Fed.

Mexico’s currency has hit a series of record lows against the dollar but that has not yet stoked inflation, which is near its lowest level on record.

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Mexico Peso Rises on Speculation Europe Rescue May Be Fortified

Bloomberg, 7/25/2012

Mexico’s peso rose for the first time in a week on speculation Europe’s permanent bailout fund will be strengthened, boosting demand for higher-yielding assets.

European Central Bank council member Ewald Nowotny said there are arguments in favor of giving Europe’s rescue fund a banking license, reviving the debate on boosting its capacity.

“The market has taken a turn and is using the peso as a risk proxy for emerging markets,” Ramon Cordova, a currency trader at Banco Base SA in San Pedro Garza Garcia, Mexico, said in a phone interview. “If a headline comes out with a good comment, you’ll see quick drops in the dollar and rises in the peso.”

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