Mexican Central Bank Keeps Rates Unchanged at 4.25% amid Economic Weakness

mexican-flag-1419738-640x480The iShares MSCI Mexico Inv. Mt. Idx. ETF (NYSE:EWW) is on watch this morning after the Mexican Central Bank decided the keep interest rates unchanged at its latest meeting.

The decision wasn’t unexpected, but the bank’s commentary wasn’t exactly rosy. The MCB said it’s keeping a close eye on the peso and its impact on prices. The Mexican peso has struggled badly against a rising dollar, recently hitting an all-time low versus the U.S. dollar in June.

Since then, the peso has recovered about 7%, but is still in a historically weak position versus the dollar.

Since December, the MCB has lifted its benchmark overnight lending by 125 basis points to 4.25%, where it stands now. With the Mexican economy exhibiting sluggish signals, the bank said it wasn’t compelled to raise rates this time around.

However, if the Federal Reserve raises rates this year as some analysts including BlackRock expect, the Mexican Central Bank would almost be forced to do so as well. That’s because the peso would likely suffer steep losses versus the dollar in such a scenario.

Mexican investors will no doubt be watching the peso closely in coming days, as well as the MSCI Mexico IMI 25/50 Index, which is tracked in ETF form via the EWW.

The EWW closed at $52.98 yesterday, up $0.99 (+1.90%), and was unchanged in premarket trading this morning. The largest U.S.-listed ETF that tracks Mexican equities has risen 6.32% year-to-date, putting it roughly in-line with the performance of the S&P 500 in the same period.

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