FXStreet (Córdoba) - With the US Federal Reserve meeting over, the focus is now shifting to several policy rate decisions in emerging markets this week, said the UBS analyst team. Given subdued economic activity in several countries, UBS expects EM central banks to keep an accommodative policy for as long as possible. However, the room for monetary easing is rather limited in light of recent FX weakness, especially in fundamentally weaker markets.
Key Quotes
“We expect the Mexican central bank (Banxico) to stay on hold this month, follow the Fed's decision. Mexico's growth-inflation dynamics might justify some monetary easing, but low energy prices and shaky global investor sentiment have weighed on the peso in recent weeks. Lowering the policy rate from the current 3% level in this environment would almost certainly trigger another round of MXN weakness”.
“Hence, Banxico doesn’t have too many options left but to follow the Fed. As this is also the market consensus view, we expect a muted impact on USDMXN”.
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