Brexit Burns Mexico as Peso Plunge Spurs Wagers on Rate Increase

  • Credit Suisse says Mexico likely to raise key rate Thursday
  • BNP Paribas says increase could be as much as a half point

The U.K.’s vote to leave the European Union is reverberating loudly in Mexico.

The peso tumbled the most since 2011 on Friday, hitting a record low in the wake of the results of the Brexit referendum. After weakening further Monday, it’s now down 10.2 percent this year, the biggest plunge among the world’s major currencies after the British pound.

The U.K. vote and the peso drop prompted BNP Paribas SA to bring forward its forecast for an interest-rate increase in Mexico by six months to this week, and swaps traders to boost bets for higher borrowing costs by the most in a month. With the currency’s deepening slide threatening to fan inflation in Latin America’s second-biggest economy, central-bank officials led by Governor Agustin Carstens will probably lift the 3.75 percent benchmark as a “preventive move” when they meet Thursday, said Credit Suisse Group AG’s Alonso Cervera.

The central bank has “been arguing that the peso and its pass-through to inflation is the main variable that would influence their policy decisions,” Cervera, Credit Suisse’s chief Latin America economist, said by e-mail.

On Friday, deputy central bank governor Roberto del Cueto said that while there’s no evidence the peso’s weakness is causing inflation expectations to rise, the monetary authority wouldn’t hesitate to act if those signs emerged.

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