If the peso gains more momentum, rate hikes could slow next year.
“If the Mexican peso continues to appreciate through the end of 2016, the Bank of Mexico may see an opening to raise interest rates more slowly in 2017 than in 2016,” according to a PNC note posted by Dimitra DeFotis of Barron’s.
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Trump has questioned NAFTA and free trade, vowed to add tariffs on Mexican imports, pledged to deport millions of undocumented immigrants and wanted to build a border wall to keep out Mexican immigrants, adding to price volatility in the Mexican peso in recent months. The peso was one of the most undervalued emerging market currencies in recent weeks and has acted as a bellwether of developing market sentiment to the likelihood of a Trump presidential win.
“Despite the ongoing weakness in the economy, we expect monetary policy to be tightened further. Our forecast is for interest rates to be hiked by a further 100 basis points over the next year, to 5.75%, with the next move likely to be a 50 basis-point increase at Banxico’s December policy meeting,” according to a Capital Economics note featured in Barron’s.
For more information on the Mexico ETF market, visit our Mexico category.
iShares MSCI Mexico Capped ETF (NYSEArca: EWW)