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Banxico plans to fight Trump effects with higher interest rate
Banco de México, popularly known as Banxico will announce interest rate decision tomorrow at 19:00 GMT and it is expected that the central bank will increase interest rate sharply to fight of the recent effects of a win by Republican presidential candidate Donald Trump in the US election, who has promised to bring back jobs to America from Mexico, renegotiate North American Free Trade Agreement (NAFTA) and build a wall along the Southern border, which would be paid by Mexico.
Naturally, the investors remain concerned over such prospects after Donald Trump’s win. After it became clear that Donald Trump is on its way to the presidency, the peso declined from 18 per dollar to 21 per dollar. The peso is currently trading at 20.4 per dollar. However, we don’t think that the Banxico would act to prevent peso from declining further but to provide incentives to investors and prevent capital flight. Since the US election results, billions of dollars have flown out of the Mexican economy and lower value of the peso threatens to spark inflation. The inflation is currently at 3.1 percent but expectations are on the rise.
Hence it is likely that Banxico would go for at least 50 basis points rate hike. Some analysts even expect 100 to 125 basis points rate hike.