Mexican peso likely to remain near 17.00 in the near future

 Many investors expect Banxico to follow Fed in lockstep. Governor Carstens stated a change in policy meetings schedule to follow US Federal Reserve. 

Inflation is at all time lows, near 2.3% yoy against the target range of 2-4%. Structural reforms in Januray could be only partially blamed for this.Headline inflation was consistently below anticipations in second half of the year as well. Hacienda tightened fiscal policy significantly to counter balance oil related revenues which are low.

"We believe the peso may remain near 17.00 in the near future. Banxico's decision to initiate a rate tightening cycle was not easy. According to the statement, the main driver was to avoid additional currency volatility as a result of a Fed lift-off", says RBC Capital Markets. 

Oil is behind the third of public sector revenues but only a third of those were hedged. Government managed to avoid fiscal ratios deterioration with alternative sources including a tax on usage of credit card.