Market Wire - Unanimous Decision Boosts Banxico's Hawkish Credibility, Helps Peso.

Karthik Sankaran, Senior Market Strategist, karthik.sankaran@corpay.com

Mexico’s central bank officially delivered a 50-basis point hike in an unanimous decision, confirming an earlier statement from the country’s president. At a news briefing this morning, President Andres Manuel Lopez Obrador pre-empted the announcement and lifted the peso by saying the central bank had opted to raise its benchmark rate to 6.5 percent.

The move was widely expected, and comes after data released this morning showed core prices were up 6.68 percent year-over-year in the first two weeks of March - a 20-year high, and well above the Banxico’s 3.0 percent target.

The decisive vote tilts Banxico’s policy stance in a slightly more hawkish direction, with new Governor Victoria Rodriguez remaining aligned with the majority - helping allay fears that she was chosen to take a softer line on inflation.

Markets expect another 265 basis points in tightening over the next year - a pace that would help narrow interest rate differentials against other emerging market central banks (like Brazil’s) that have front-loaded their rate hike cycles.

The combination of an aggressive central bank and improved global risk appetite helped the peso rally, with much of the move completed before the actual decision. The peso is now at levels reached last September and further gains past the psychological 20 level will likely depend on the interaction of global and local factors.