Banxico keeps rates at 11.00%, Peso continues to depreciate

• Banxico holds interest rate at 11.00%; Deputy Gov. Mejia Castelazo votes for 25 bps cut.
• Officials cite financial market volatility and unique economic factors in Mexico.
• USD/MXN dips to 18.35 post-Banxico, then climbs, gaining 0.42%.

On Thursday, the Bank of Mexico (Banxico) decided to hold the overnight interbank interest rate at 11.00%, as expected by most market participants. However, the decision was not unanimous, with Deputy Governor Omar Mejia Castelazo's 25-basis-point rate cut vote potentially having a significant impact.

Banxico's unanimous decision  fails to underpin the Mexican Peso

Banxico policymakers mentioned that Mexico's financial markets were volatile and affected by “idiosyncratic factors.” Consequently, Mexico’s Government bond yields rose, and the Peso depreciated.

Officials mentioned that the disinflation process is expected to continue, adding that “the board foresees that the inflationary environment may allow for discussing reference rate adjustments.”

They acknowledged that the Mexican Peso depreciation impacted inflation forecasts, which were offset by weaker economic activity; however, the inflation risks balance remains skewed to the upside.

USD/MXN Reaction to Banxico’s Decision

The USD/MXN retreated to 18.35, before resuming its ongoing uptrend, with momentum favoring buyers, as depicted by the Relative Strength Index (RSI) in the hourly chart. The exotic pair trades with gains of 0.42%.