The Mexican peso recovered some of its earlier losses against the US dollar on Friday, 6 November, after Banco de México surprised markets with a 25 basis point cut to its interest rate. The peso appreciated 0.68 percent, bringing the exchange rate to 18.62 pesos per dollar, 13 centavos stronger than the close on Thursday, 5 November, according to Bloomberg.
The move narrowed the gap between Mexican and US borrowing costs. Gabriela Siller, director of economic analysis at Banco Base, said the interest rate differential between the two countries fell to a new historic low of 225 basis points. She said that narrower gap was a risk for upward pressure on the exchange rate.
Analysts question the timing
BBVA Research called the cut untimely. Its analysts said the Banxico Governing Board would have been prudent to take a conservative approach and wait for a more favourable situation.
Paulina Anciola and Iván Arias, analysts at Banamex, were more blunt. They said there were no conditions for a more accommodative monetary stance, given the rise in inflation in Mexico and the depreciation of the exchange rate.
Other currencies also firmed
The peso was not alone. Several emerging-market currencies also strengthened against the dollar. The Indian rupee gained 0.59 percent, the Taiwan dollar rose 0.32 percent, the Israeli shekel gained 0.27 percent and the Colombian peso added 0.16 percent.
Mexican 10-year bonds yielded 9.11 percent, while the US 10-year yield stood at 4.87 percent. Banamex quoted the dollar at 19.05 pesos to sell and 18.01 pesos to buy.
Related: Mexican peso slides after Banxico's surprise rate cut
Source: Bank of Mexico
