Mexico keeps its powder dry, but rate hikes still likely

The rebound in the peso over the last few hours appears to have dissuaded Mexico’s central bank from raising interest rates at a press conference this morning. However, with the situation in markets still uncertain, our sense is that the central bank will still use next week’s (scheduled) policy meeting to hike interest rates, albeit by a relatively modest 50bp, to 5.25%. Larger rate hikes now seem unlikely unless the peso comes under renewed pressure.