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The Central Bank of Mexico brought forward its policy meeting by one week and cut the reference rate by 50 points.

This came fast on the heels of the Fed’s own rate cut of 100 basis points, leading to a wider interest rate spread. In fact, the interest differential is higher now than before the Banxico joined the rate-cutting cycle.

Presumably, this would lead to further strength in the peso. But, with all the risk aversion in the markets, that hasn’t been the case.

In particular, what’s worrying analysts and maybe why the Banxico wasn’t more aggressive in its rate cuts, is the potential for a rise in inflation.

Regular Measures Are Not Enough

Of course, given the unprecedented financial situation as a result of COVID-19 (with one of the members of the Banxico’s board being confirmed as infected), usual criteria don’t apply.

Inflation isn’t as important as keeping the economy from collapsing outright.

Yet, Mexico seems to have managed to stay a...

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