Coordinated moves between the central bank and the Finance Ministry during February in which the Banxico raised the key rate and Finance Ministry announced spending cuts, have been "quite successful" in stabilizing the peso. The currency has strengthened 9.3 percent since the coordinated move between the monetary and fiscal authorities.
Banxico Governor Agustin Carstens said on Wednesday that the peso is undervalued and has room to appreciate. In an interview he pointed out that the central bank prefers to use interest rates rather than interventions in order to manage the peso exchange rate.
Mexico illustrates decent GDP growth and reasonable inflation dynamics. Given that the key rate, now at 3.75 percent, remains near an all-time low, Banco de Mexico can increase borrowing costs gradually and in line with the U.S. Federal Reserve without hurting the economy, he said in an interview in his Mexico City office.
"We think that the peso should benefit from good, albeit deteriorating, fundamental data. Nonetheless, for the moment we’re fully in agreement with the Governor." said Commerzbank in a report.
