According to analysts from Brown Brother Harriman, today’s announcements from Mexico (rate hike, direct intervention in the forex market and spending cuts) came in at the correct moment. They warned that another rate hike can’t be rule out. Key Quotes: “Mexican policymakers caught the markets wrong-footed today with extremely aggressive measures. First, Banco de Mexico announced that it had sold dollars outside of the usual auction process. It followed up with a totally unexpected intra-meeting 50 bp rate hike to 3.75%. In addition, the FX commission announced that it was discontinuing the regular auction program whilst maintaining the possibility of further discretionary dollar sales.” “The rate hike was the biggest surprise, since Banxico had strongly hinted that any rate moves would largely depend on US rate policy.” “The next policy meeting is March 18, and we can’t rule out another hike then to really cement the central bank’s resolve to maintain confidence in the peso.” “Lost in the shuffle (but equally important) was the announcement of MXN132.3 bln in spending cuts by Finance Minister Videgaray. These cuts have been hinted at, but had a much bigger impact by coming at the same time as the Banxico moves.” “The timing was impeccable. EM, oil, and “risk” were already rallying this week and so Banxico appears to have picked the perfect timing. Indeed, Mexico’s actions can be filed perfectly under the “Golden Rules” of FX intervention: 1) surprise the markets, 2) go big, and 3) go WITH the market, not against it.” “Once again, Mexico demonstrates its long track record of policymaking ingenuity and knowhow. Despite a reputation for being largely hands-off, policymakers there have served notice to the markets that there is always two-way risk present.” For more information, read our latest forex news.