Sunday, February 25, 2024

Why is inflation a good cure for Mexico’s currency?

After reading the inflation figures in our country, which continue to show that inflationary pressures have not disappeared, the expectations on the part of investors that the Bank of Mexico (Banxico) will continue to maintain a strict stance give a break this Wednesday in the Mexican. peso, which previously involved two sessions of losses.

The above is due to the fact that the interest rate differential that exists between Mexico and the United States is one of the main factors that pushes the Mexican currency to reach the levels of appreciation that it continues to have. and continues to maintain.

The director of economic analysis at Banco Base, Gabriela Siller, explained that, especially today, one of the factors that allowed the appreciation of the peso was the publication of inflation in Mexico, which reached an annual rate of 4.90 percent in the first half. of January. “The increase in inflation increases the likelihood that the Bank of Mexico will choose to wait longer to start cutting interest rates,” he stated.

“There is a lot of change in this narrative of the markets that we had at the end of last year, which is that the US economy will avoid a recession and will continue its strength in 2024, and the rates of interest will increase seven times. Now, this account is partially recalibrated, and that will cause the Mexican peso to also adjust its price to the dollar,” explained the chief economist of Grupo Financiero Ve por Más, Alejandro Saldaña, at a media event.

On the subject, the director of analysis at Intercam Banco, Alejandra Marcos, indicated that the exchange rate is this buffer to calibrate these expectations of what we can expect about the current fronts: geopolitical risks, electoral issues, and recalibration of expectations regarding monetary policy, because they foresee that the disinflationary path may be slower and more complicated than estimated, which may cause the exchange rate to suffer some slippages because there aren’t so many movements. .

World Nation News Desk
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