Mexican central bank surprises with a hike

USD/MXN plunges 5%.

A meeting wasn't even scheduled.

The rate was raised to 3.75% from 3.25% as the government gets desperate in a bid to halt capital flight and shore up the peso.

Comments from central bank leader Carstens:

  • Says it's not the start of a tightening cycle
  • FX commission suspends sales of USD immediately
  • We have seen an overreaction to recent events
  • FX moves have raised inflation outlook

This is a good illustration of the strain in emerging markets. A surprise hike to halt a falling currency is a panic move.