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Mexican Peso Mixed on Weak Industrial Output, Expected Rate Cuts

September 13, 2019 at 12:09 by Andrew Moran

Mexican peso notes in assortmentThe Mexican peso is mixed against a basket of currencies to end the trading week. Investors are combing through the nation’s latest industrial production numbers for July, while also monitoring monetary policy. With inflation lower than what central banking officials want and the economy enduring immense uncertainty, analysts are unsure how the government will tackle the situation.

In July, industrial output fell 0.4%, down from the previous month’s 1% expansion, lowering the 12-month rate tumbled 1.7% in July. This is still better than the 2.7% decline that markets had penciled in.

Also, the nation’s automobile industry took a huge dive last month as vehicle output plummeted 9.6% and exports plunged 12.7%

Earlier this week, the YoY inflation rate in August clocked in at 3.16%, down from 3.78% in July. The core inflation rate for last month was 0.2%. This is leaving analysts expecting that Banxico, the country’s central bank, will have more reasons to slash interest rates after cutting the benchmark lending rate for the first time since June 2014 last month.

Banxico will hold its next policy meeting on September 26. Experts believe that the central bank will follow in the footsteps of the Federal Reserve, which is meeting on September 18. It is believed that Mexico has room to cut rates by as much as 100 basis points before the peso becomes less appealing on forex markets.

Meanwhile, because the second-largest Latin American economy has come to a screeching halt since the arrival of President Andrés Manuel López Obrador, the government has proposed a countercyclical fund to help the country weather economic storms.

Finance Minister Arturo Hererra presented the proposal in the government’s 2020 budget:

We’re very far advanced with the design of the countercyclical policy. We still have to talk with legislators, rating agencies and international financial organisations to ensure that they see it as something that would be a plus for the economy and public finances, not an element of uncertainty.

Although Mexico has been relying on its Budget Income Stabilization Fund in recent months, the finance minister says the program has its limits. The government has already tapped $6.4 billion from the fund.

The USD/MXN currency pair fell 0.2% to 19.3958, from an opening of 19.4340, at 12:03 GMT on Friday. The EUR/MXN rose 0.17% to 21.5400, from an opening of 21.5048.

If you have any questions, comments, or opinions regarding the Mexican Peso, feel free to post them using the commentary form below.

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