Macroeconomic Forecast Mexico

June 2008 | Macroeconomic Forecasts

Since the start of the year, the peso has broken out of the well-defined MXN11.52-10.62/US$ trading band observed since Q106. The currency has seen appreciation of almost 5.5% against the US dollar since the start of 2008, and is now touching levels in the region of MXN10.30/US$ last seen in mid-2003. Although overseas remittance growth has stagnated on the back of a slowdown in the US, elevated oil prices have boosted Mexico's foreign exchange income. Furthermore, the negative medium-term inflation outlook has fuelled speculation that Banxico may move to tighten monetary policy, lifting the policy rate from its current 7.50%, thus increasing the attractiveness of the currency to overseas investors. We see the potential for the unit to strengthen to MXN10.20/US$ by year-end.

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