USD/MXN: Most roads lead to a stable to stronger Peso – ING

Banxico meets today. Economists at ING analyze Mexican Peso’s outlook ahead of the Interest Rate Decision.

Will Banxico offer concrete signs of easing?

There has been some suggestion that Banxico wants to fine-tune its 11.25% policy rate with a small cut early next year, perhaps in March. The unique problem for Banxico is that Mexico's government is loosening up fiscal policy into a 2024 election year, which should see the economy growing by a decent 2%. It is uncertain, therefore, whether it will offer concrete signs of easing at today's meeting.

Most roads, however, we believe lead to a stable to stronger Peso. The macro story looks good – including record remittances running at $5.8bn per month – but the main risk is that Banxico tries to reign in Peso strength by offering easier policy after all. This should be a positive cocktail for non-FX hedged positions in the short end of the government MBONO bond market. And USD/MXN does not stray too far from 17.00.