Background on the Mexican Central Bank and Its Interest Rate Policy
The Banco de México (Banxico), Mexico’s central bank, is responsible for managing the country’s monetary policy. One of its primary tools is setting the interest rate, which influences inflation and economic growth. In late 2024, Banxico initiated a series of interest rate reductions to stimulate the economy amidst global uncertainties.
Understanding the Recent Inflation Report
The National Consumer Price Index (INPC) reported a slower-than-expected increase of 3.72% in the first half of December. The underlying inflation, which excludes volatile food and energy prices, also decreased more than anticipated to 4.34%. Despite this decline, the underlying inflation remains above Banxico’s target range of 3% ± 1 percentage point.
Impact on the Mexican Peso
On the morning of this Tuesday, the Mexican peso appreciated against the US dollar due to a general decline in the greenback and a favorable inflation report from Mexico. This report supported expectations that Banxico might pause its cycle of interest rate cuts.
Current Exchange Rate and Trading Conditions
As of this writing, the Mexican peso was trading at 17.9392 per US dollar, marking a 0.22% gain. Trading volumes are expected to be lower than usual due to the year-end holiday season.
Key Questions and Answers
- What is the current exchange rate between the Mexican peso and the US dollar? The Mexican peso is currently trading at 17.9392 per US dollar.
- Why is the Mexican peso gaining ground against the dollar? The peso’s appreciation is due to a weakening US dollar and a favorable inflation report in Mexico, which suggests that Banxico may pause its interest rate cuts.
- What is the recent inflation report’s significance? The INPC increased by 3.72% in the first half of December, lower than expected. The underlying inflation rate fell to 4.34%, still above Banxico’s target, indicating that the central bank may soon halt its interest rate reductions.
- How do lower interest rates affect the Mexican peso? Lower interest rates can make a currency less attractive to foreign investors seeking higher returns, potentially leading to a decrease in demand and a weaker currency. However, in this case, the peso is gaining ground due to the factors mentioned above.
