Question

In: Finance

Discuss Mexico's exchange rate regime and monetary policy in terms of what is Currently happening. How...

Discuss Mexico's exchange rate regime and monetary policy in terms of what is Currently happening.

How it is effected?

Changes? etc...

Solutions

Expert Solution

Mexico has a floating exchange rate which means it's currency is not pegged against dollars. The Mexican pesos has lost significant value against dollars.

During the coronavirus pandemic, Mexican pesos has lost significant value as the emerging markets and less developed countries has seen significant reduction in value of domestic currency against dollars.

So it can be said in current environment, American Dollars have appreciated against mexican pesos.

There has been an environment of quantitative easing adopted by different central banks and Mexican central bank is no different as it has significantly cut the interest rates to stimulate the economy under such troublesome situation when there is an expectation of impending recession.

The Mexican central bank is cutting rates till 75 basis points to stimulate demand and economy. It has also announced 750 billion pesos stimulus package for economy in such chaotic situations.

It is expected to effect the economy in a positive way as these rate cuts and stimulus package will help economy on positive way.


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