Highlights of the Banxico decision

Previously the Mexican central bank surprised markets with a 25 basis point rate hike to 4.25%.

A hike was expected but the decision was tighter than the market was expecting with 3 votes for a hike and two votes for a hold. That's given USD/MXN a small lift.

USD/MXN has been stuck around 20.00 for nine months after a great run lower from 25.00 coming out of the depths of the pandemic. There's still plenty of work to do to get back to pre-pandemic levels around 18.50.

Highlights of the Banxico decision

The central bank said risks related to rising infections persist but that the recovery in the economy is expected to endure for the remainder of the year.

Regarding inflation, headline and core inflation projections call for a decrease, particularly one year out and beyond. They call for price convergence at the 3% target in Q1 2023.

They said that although the shocks that have increased inflation are expected to be transtory, the magnitude and extended horizon may post risks to the price formation process.