The Mexican central bank (Banxico) surprisingly opted to raise its policy rate by 50 bps. The MXN reacted sharply appreciating. However, the Peso could still come under pressure if Banxico does not remain hawkish, economists at Commerzbank report.

Banxico maintains pace and sends MXN soaring

“Banxico surprised with a 50 bps rate hike to now 11%, sending the MXN soaring.”

“Banxico is proving to be an inflation fighter after the departure of central bank member Gerardo Esquivel, who was considered a big dove, which should in principle help the Peso.”

“The big question now is where the peak in the interest rate cycle will be, since core inflation in particular shows no signs of easing yet, which makes it important for Banxico to remain hawkish. Otherwise, it risks that the MXN will ultimately be punished after all.”