Insightperspectives January 1, 2016 v3

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accounts for 80% of Mexican exports). The Mexican
central bank was therefore forced to act immediately
by
In the near future, China, could also create headwind to
Mexico. This is the case as Beijing appears to be on a
path of more yuan depreciation. China cannot sit tight,
having seen the yuan appreciate strongly against all
other currencies in the last five years at the same time
as overcapacity and overleverage have become more
pronounced on the mainland – read more in the
Even though the Mexican government has pursued a
prudent strategy in the last few years and this has
made policy-making more flexible, there is no doubt
that global headwind is gaining momentum. Recently,
the Mexican central bank has tried to stem the decline
of the peso by intervening in the foreign exchange
market.
These efforts, however, will not be efficient at the same
time, since until recently the central bank added
liquidity to the domestic market. Indeed, Mexico may
soon acknowledge that it may not even be enough just
to mirror US monetary policy; a sharper rate hike may
be required. On the other hand, this will make the
Mexican peso even more attractive; the currency is
already undervalued!