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Latinnews Daily - 07 February 2018

In brief: Mexico

* Local economists have warned that the sharp falls observed in US stock markets since start of the week could lead to Mexico’s central bank (Banxico) being forced into adopting a more restrictive monetary policy to manage the peso/US dollar exchange rate but to the detriment of domestic economic growth in Mexico. Commenting on the sharp 4.6% fall registered in the Dow Jones Industrial Index on 6 February, a research note by José Nabor of the economic investigations institute at the Universidad Nacional Autónoma de México (Unam) said that the historic fall in the US stock markets will affect Mexico’s economy as investors will also seek to divest from Mexican stocks as they move towards US government bonds following the US Federal Reserve’s decision to increase its benchmark interest rate. Pointing out that the Mexican stock market fell by 2.16% following the move in the Dow Jones, Nabor noted that the stock market volatility also affects the peso/dollar exchange rate, with the peso depreciating by 0.70% on 6 February to M$18.95/US$1.00. Nabor explained that if the stock market volatility continues, and the peso continues to depreciate, Banxico would be forced to intervene and may seek to further increase interest rates in support of the peso.

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