The Mexican peso was relatively stable today despite dovish monetary policy meeting minutes of the nation’s central bank and unfavorable domestic macroeconomic data. Political turmoil was also putting pressure on the currency, which was surprisingly resilient during the current trading session.
The Banco de Mexico released minutes of its monetary policy meeting in June when policymakers decided to keep the main interest rate unchanged at 8.25%. Four out of five members of the Board voted for the decision, while one voted for a 25 basis point cut. The minutes said:
Most members pointed out that, given the recent evolution of economic activity in Mexico, the growth outlook has continued to deteriorate.
The notes also stated that considering the worsening growth outlook and the downward pressure on inflation monetary policy should remain cautious:
The majority agreed that under such challenges the central bank must maintain a prudent and cautious policy stance and monitor closely all determinants of inflation, its outlook, its balance of risks and the possible materialization of certain risks, in order to guarantee the convergence of inflation to its target. Finally, they stated that the central bank’s communication should reflect that it will be attentive to taking the required monetary policy actions based on incoming information, and will act in a timely manner to guarantee the orderly convergence of inflation to its goal.
Overall, the comments from the central bank reinforced the outlook for an interest rate cut in the near future.
Meanwhile, Mexico’s industrial production dropped 3.3% in May, year-on-year, after falling 2.8% in the previous month. The actual drop was more than two times bigger than 1.5% promised by the consensus forecast.
Earlier this week, the peso dropped sharply after Mexican finance minister Carlos Urzúa in a surprise move resigned from his post.
USD/MXN edged down from 19.0608 to 19.0460 as of 15:05 GMT today, retreating from the daily high of 19.1236. EUR/MXN declined from 21.7738 to 21.7157, backing off from the session maximum of 21.8565.
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