Bank of Mexico quells speculation of rate hike

Bloomberg

Mexico’s central bank has the ‘highest hope’ of keeping its rate decisions to scheduled meetings, Governor Agustin Carstens said, quieting market speculation of another surprise increase in borrowing costs. One-year interest-rate swaps fell.
The recent peso depreciation has been driven by fundamentals and not by an attack from speculators like the one that took place in February when Banco de Mexico raised rates half a point in an unscheduled decision, Carstens said at a news conference in Mexico City.
While not ruling out currency market intervention to bolster the peso, he said the central bank would do so only under exceptional conditions.
Banks from Barclays Plc to Citigroup Inc. began forecasting the possibility of another surprise rate hike before policy makers meet June 30 after the peso fell 7 percent this month, the worst performance among major currencies after the South African Rand.
Some analysts had also discussed a possible dollar sale, another tool that Banxico had unveiled in February along with the Finance Ministry to bolster the exchange rate.
“It seems that Banxico will try to move with the calendar, so the chance is lower” of a surprise rate increase, Marco Oviedo, chief Mexico economist at Barclays, said in an e-mailed response to questions.
“But a hike is coming, sooner or later.” Barclays forecasts borrowing costs will rise by half a point in the June meeting.
The peso pared some of its gains following Carstens’ remarks, which included the presentation of Banxico’s quarterly inflation report.
In the report released recently, the Banxico’s board cut its 2017 economic growth forecast to around 2.3 percent to 3.3 percent from the previous of
approximately 2.5 percent to 3.5 percent.
One-year rate swaps fell the most since January, dropping 0.07 percentage point to 4.78 percent in Mexico City, indicating lower odds of a rate increase.
Banxico will make decisions on interest rates “with the highest hope that they will be made within the normal calendar for monetary policy decisions,” Carstens said. Peso intervention “would be only and exclusively under conditions that are frankly exceptional.”
The Bank of Mexico is the Mexico’s central bank, monetary authority andl ender of last resort. The Bank of Mexico is autonomous in exercising its functions, and its main objective is to achieve stability in the purchasing power of the national currency.
By constitutional mandate, it is autonomous in both its operations and management.
Its main function is to provide domestic currency to the Mexican economy and its main priority is to ensure the stability of the domestic currency’s purchasing power. Its other functions are to promote both the sound development of the financial system and the optimal functioning of the payment systems.
According to the authorities, the main goal of Banco de Mexico is to preserve the value of Mexico’s currency in the long term in order to improve Mexicans’ well-being. Besides, it is looking forward to be a highly renowned, accountable and trustworthy institution intended to fully attain its mission on the basis of its transparency, technical capacity, and
ethical commitment.