Mexico’s central bank has ended its rate hike cycle, but continues to signal attractive real interest rates. This supports the peso, although downside risks stem from economic developments in the US, Commerzbank economists report.
Developments in the US remain an important risk factor for MXN
“If inflation falls as expected, we see room for a rate cut later this year or early 2024. However, we do not expect the peso to weaken significantly against the USD as any rate cut is likely to be in line with the Fed’s easing efforts.”
“If the U.S. economy cools more than expected, that will have an impact on Mexico’s outlook as well. This would likely limit pro-inflationary risks and could mean a sharper cut in Mexican interest rates and a correspondingly less attractive real interest rate outlook, weighing on the peso.
“However, in our baseline scenario, we expect solid domestic demand and Banxico’s vigilance to continue to support the peso in the face of a still uncertain inflation outlook.”
Source: Commerzbank Research
