by Nomi Prins
In regard to monetary policy, Mexico is a good neighbor to the U.S. It has been mirroring Fed policy since the financial crisis. As the U.S. Fed cut rates to zero, Mexico did the same by cutting rates to a 3% low by 2014.
When the Fed did QE, Mexico did too. When the Fed raised rates for the first time in seven years on Dec. 16, 2015 by 25 basis points, so did Banco de Mexico, the very next day. But, there’s a twist…
Banco de Mexico raised rates again on Feb. 17, 2016 by 50 basis points. No one saw that coming. Thus, the peso — that had declined steadily from 10 to 19 to the dollar between 2008 and mid-February 2016 (and by 18% during 2015) — strengthened back to 17.66 to the dollar as of March 24, 2016.
Banco de Mexico didn’t raise rates to fight inflation. Mexico has the lowest inflation in Latin America and one of the region’s highest 2016 growth projections.