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Commerzbank on Banxico: Concerns Point To More Decisive December Action

  • The fact that President AMLO nominated Victoria Rodriguez, Vice-Minister of Finance, as the future Banxico governor caused upheaval on the financial markets yesterday. The news caused palpable uncertainty on the markets about Banxico's future monetary policy course and the peso eased. USD-MXN briefly shot above the 21.60 mark; levels that were last seen in April 2020.
  • In the challenging global environment and due to a continued rise in inflation rates the President's change of heart comes at a bad moment. MXN investors might fear that the designated Banxico governor does not have the required experience for the position. But above all they could fear for the central bank's sovereignty, as Victoria Rodriguez is seen as a close ally of President AMLO.
  • The fact that the peso was able to retrace some of its losses suggests that, following the initial shock, MXN investors want to wait and see what happens as the Senate has yet to approve the step. If comments on the part of the nominated Victoria Rodriguez or the President were to fuel doubts about the future stability-orientated course of Banxico, the peso would face further painful losses which would further increase price pressure.
  • Against this background, markets are likely to begin focussing on Banxico's December meeting already. From Commerzbank's point of view - concerns about rising inflation expectations in particular point towards Banxico taking more decisive action against high inflation rates.

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