MXN Close to New Low As Central Bank Under Pressure

Policy makers have started to spend international reserves to bolster the currency, and Carstens conceded to the Wall Street Journal that the central bank may have to raise rates before the next scheduled decision in September if volatility increases.

“If it weren’t for the Fed and the peso, the central bank probably would not be in a rush to hike rates,” said Rafael de la Fuente, chief economist for Latin America at UBS AG. “Clearly the peso is an issue, and financial stability is very important to them.”

Investors are now looking to Carstens to provide details on how the central bank will manage to stabilize the currency without choking growth. Policy makers have said the inflation impact from peso weakness so far has been limited to prices for durable goods, partly because the economy remains too weak to pressure broader prices.

But policy makers who expect growth to pick up have said they’re watching for signs that the peso is spurring faster price increases and will act to ensure inflation remains at its 3 percent target.

via Bloomberg

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza