Mexico’s Central Bank Surprises with 50 bps Rate Hike

Mexico’s central bank intervened directly in the forex market to sell dollars as part of an aggressive new program, two central bank sources said on Wednesday, in a major policy shift to support the peso, which plunged to fresh lows in recent weeks.

One of the sources said the new program will be announced at a press conference at 11 a.m. local time (1700 GMT).

The move marks an unexpected break from Banco de Mexico’s general preference for rules-based intervention and is the first time since 2009 that it has opted for direct dollar sales.

The peso, which has been slammed by sinking oil prices, surged more than 3 percent in early Wednesday trading, after touching a new all-time low last week at 19.4480 per dollar.

The peso is currently down about 6.5 percent against the dollar year-to-date.

“We are calling the banks to ask them for prices directly and selling them dollars to the financial institutions that give us a price,” a central bank source told Reuters. “It is through phone calls to brokers that we are selling dollars to the market.”

Mexico is committed to a freely-floating exchange rate and usually refrains from opting for more direct forms of intervention used by other emerging market economies.

via Reuters

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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