Mexico: FX policy change not a game changer – UBS

By FXStreet The Mexican central bank (Banxico) surprised financial markets on Wednesday by hiking the monetary policy rate by 50bps at an unscheduled policy meeting.In addition, the country’s Exchange Commission announced the suspension of the current intervention mechanism (which foresaw daily interventions of up to USD 400m). Instead, the Commission will now intervene at its discretion to support the currency, which they started to do this week as well.

UBS analyst teams believes MXN rally is not necessarily sustainable and they are leaving the forecasts for USD/MXN unchanged for the time being.

Key Quotes

“The size of the overall program is unclear and the magnitude of interventions was not released, but the joint efforts by Banxico and the Commission were significant drivers behind Wednesday’s appreciation of the peso. The MXN rallied roughly 3% versus the USD and continued to extend gains”.

“We welcome the change in the intervention mechanism as we think a discretionary approach allows the Commission to react more flexibly and tactically to market conditions than under the previous framework. Wednesday’s interventions occurred in an environment of low liquidity and trading activity and were therefore a more efficient and sustainable use of FX reserves than the previous, more mechanical approach, we think.”

“The rally in …read more

Source:: FX Street