Talking Points:
• Central Bank of Mexico Keeps Benchmark Interest Rates Stable.
• HSBC Mexico PMI Index Points Toward Expansion With 56.6 Percent Reading.
• Annual Inflation Falls in 2014.
• Peso Soars Following HSBC PMI Index Increase.
The Peso gained footing and appreciated as the HSBC Mexico PMI index rallied to 56.6 percent on Tuesday, February 03 2015, the highest measure since December 2012. Mexican PMI in December 2014 was 55.3 percent indicating an expansion in the manufacturing sector, which should help bolster economic growth, despite falling oil prices making up about one-third of Mexico’s revenue. Mexico which sends nearly 80 percent of its exports to the US could see a further rise in manufacturing PMI as the peso continues to fall following expected interest rate hikes in the U.S.
The surprise hike in Mexican PMI came days after the central bank of Mexico’s decision to keep interest rates steady at 3 percent. Policymakers kept interest rates stable for several reasons, while the economy seems to be recovering, growing between 2.1 percent and 2.2 percent in 2014, up from 1.4 percent in 2013, growth has been a gradual process. The central bank also commented on weak domestic demand playing a key role in leaving interest rates at record low levels. In response to the recent U.S. Federal Reserve announcement to remain “patient” before beginning to raise rates, the Peso has been trading at nearly six-year low levels against the USD stemming from their previous interest rate cut in June 2014. According to the central bank of Mexico, investors could expect a similar hike in lending rates mid to late 2015 synonymous with expected interest rate hikes by the U.S Federal Reserve.
The Peso tumbled in the last quarter of 2014 by nearly 12 percent raising concerns of higher than expected inflation to ensue in the future as vendors raise prices to compete with the falling currency. Despite these concerns, annual inflation fell from 4 percent to 3 percent in January 2015.
As of Tuesday, February 03, 2015 economists surveyed by the central bank of Mexico lowered their inflation and growth estimate for 2015. According to leading economists’ the Mexican economy is likely to expand by a moderate 3.3 percent in 2015, down from their 3.5 forecast in December 2014. The lower than expected growth stemmed from falling world oil prices and the decision of the Mexican government to slash their budget by 0.7 percent of GDP.
