The Mexican central bank’s decision to raise interest rates this week underscored its sensitivity to currency weakness and, while our base case is that this move will be a one-off, further falls in the peso in the coming months would clearly push the Board into further action. In contrast, the decision by Brazilian policymakers to shrug off the recent dip in the real and leave the Selic rate unchanged reinforces our view that interest rates will be left unchanged until after October’s elections.
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