The truth behind interest rate hikes made by Mexico’s Central Bank (Banxico) is that every time it does it, it’s like tossing a coin up in the air to meet market demands and keep a balance in the economy.
The Thursday hike of half a percent point from 4.25 to 4.75 was indeed a big one, the highest since 2009 in one lump, but still in keeping with the upward trend Banxico director Agustín Carstens has kept through the year. In 2009 the entire world was in an economic slump and the Mexican economy ended up that year minus 6.2 percent gross domestic product points in the hole.
In fact, 2016 began with a 3.25 interest rate and as you can see, it’s been increased, little by little, to the current 4.25. But adding up a 1.5 percent in nine months is a huge leap in terms of keeping the markets happy and flowing.
The news release issued by Banxico says that “this central institution has decided to carry out an adjustment in its monetary posturing with the objective of maintaining inflation (down) and expectations for it well anchored, which at the same time contribute to a firmer financial stability.”
Previous to the hike, several polls carried out by financial information agencies pointed out to the fact that most banking economists suggested that half a point would be the right measure to meet market demands.
Needless to say that the increase also reflects following the path set by the reference rate the U.S. Federal Reserve currently keeps.
The press release issued by Carstens warns that though the increase is higher than previous ones, which have been a quarter of a point at a time, “the hike does not pretend to initiate a circle of increases” therefore it will keep a close observation of the evolution of all the prices that determine Mexican inflation and expectations for the mid and long terms.” In plain English, Banxico momentarily breaks away from the Fed’s current and future interest rates movements, which are expected by Banxico to be on the down side.
Surely the first impact came both on the dollar-peso as well as the Mexican Stock Market or Bolsa.
The currency value had no wild changes as it was kept within the range it had on Wednesday with a sell value quoted circa 19.75 peso units per dollar.
And the Bolsa, which has been buoyant around the record 48,000 points mark, lost a bit of ground but nothing to be concerned about as it decreased to around 46,600 by market closing Thursday afternoon.
As for the forever volatile dollar-peso exchange, it seems that for the moment it will have stability for the near offing with the dollar staying under the 20 peso rate speculators have been hoping for.
Still, the political resonance caused by the U.S. election will continue to be a gauge for it with an end in sight come the Nov. 8 election.
But for now, there’s stability with Banxico speaking loud and clear.
It’s indeed a good way to end the rather turbulent month of September.
