2016.06.2811:04:00UTC+00Banxico Rate Decision on Thursday Likely to be a Close Call

Mexican central bank meets on Thursday, June 30 to decide monetary policy and opinions among the members remain quite divided ahead of the meeting. Admittedly, uncertainties have grown exponentially since Brexit, but risks existed even before the vote given MXN underperformance.

Mexico last raised its key interest rate to 3.75 percent on Feb. 17, after the peso had fallen 9 percent since the beginning of the year. It also introduced discretionary dollar sales, though Banxico hasn’t intervened again since the announcement.

“I can assure you that we will be ready to act at every opportunity,” said Roberto del Cueto, deputy governor at the central bank, adding that the bank would intervene in the foreign exchange market only when the market moves in a ’disorderly’ manner.

Following the UK's referendum to remain or leave the EU, Mexico's Ministry of Finance, central bank (Banxico), and the Ministry of Economy released a joint statement in an effort to address uncertainty regarding Brexit's impact for Mexico. Mexico announced it would cut federal spending by 31.7 billion pesos ($167.9 billion), reducing the country’s international funding needs as emerging-market assets worldwide tumble following Brexit.

The market prices in a cumulative 74bps of hikes until year-end, and 41bps at the next August meeting, but only a negligible chance of a hike this week.