The market is already discounting an increase of 75 basis points in the monetary policy announcement of the Bank of Mexico (Banxico), on Thursday, September 29, in which no sharp movements are expected in the Mexican currency as it remains in a range close to 20.20 pesos per dollar.
The 25 analysts consulted by Bloomberg do not expect surprises, since 100% are betting on an increase of 75 basis points to reach a level of 9.25%, a new record in its history.
“ The market has already discounted that the Bank of Mexico is going to raise the interest rate to the same magnitude as the Federal Reserve, there is a growing consensus that the central bank is going to continue increasing the interest rate at the pace of the Fed , so the short-term spreads between Mexico and the US will remain stable and that supports the strengthening of the national currency,” said Jessica Roldán, chief economist at Finamex.
In the event that Banxico decides to raise interest rates by one percentage point, the peso could appreciate more than estimated. In the event that the scenario were 50 basis points or less, the local currency would be pressured by the strengthening of the dollar.
This Wednesday, the currency closed at 20.1370 units per dollar, an appreciation of 1% compared to its close on Tuesday, according to data from Banxico.
Gabriela Siller, director of economic analysis at Banco Base, said that if Banxico issues a more restrictive statement to raise interest rates in the future, it could give the Mexican peso a greater boost. “For now, the increase of 75 base points could take it to levels of 20.20 pesos per dollar, while an increase of 100 base points would take it to a level close to 20 pesos per dollar again. In case of being less restrictive, the Mexican currency could reach 20.45 or 20.50 pesos per dollar,” he added.
OctaFX specialists mentioned that the upward pressure for the dollar is strong; however, a consolidation below 20.20/25 units per dollar would ease this pressure and could even suggest a potential ceiling to contain short-term gains.
Analysts pointed out that some of these factors will continue to be in force, such as the issue of the trade balance, which will remove some support from the peso. However, remittances will begin to cool down in the remainder of 2022 and part of 2023, as the US economy slows down or stagnates, which will not be favorable for the national currency.
Go for More estimates a level of 21.40 pesos for the end of the year, although they consider it could drop a little more, since it will depend on factors such as the trade deficit, the cooling of remittances, economic uncertainty and the issue of the elections in the United States. While in Finamex it is estimated that the peso could maintain current levels of 20.45 pesos per dollar.