Mexico’s peso dropped the most among major Latin America currencies after Federal Reserve minutes indicated a debate over further stimulus for the biggest market for the Latin American country’s exports.
The peso fell 0.7 percent to 12.7253 per U.S. dollar at 4 p.m. in Mexico City, the biggest decline since Feb. 4. The currency has advanced 1 percent this year.
“I see it all related to the Fed,” Ramon Cordova, a currency trader at Banco Base SA in San Pedro Garza Garcia, Mexico, said in a telephone interview. Speculation the Mexican central bank will reduce benchmark borrowing costs “is a bit of a limitation” to peso appreciation.
Minutes of the Federal Open Market Committee’s Jan. 29-30 meeting published today showed policy makers were divided about the strategy behind Chairman Ben S. Bernanke’s program of buying bonds until there is “substantial” improvement in the U.S. labor market. Mexico sends about 80 percent of its exports to its northern neighbor.
After markets closed yesterday, Citigroup Inc.’s local Banamex unit joined banks including Barclays Plc and JPMorgan Chase & Co. in projecting that Mexico’s central bank will probably reduce borrowing costs in the first half of this year.
Nineteen out of 20 economists forecast Mexico’s central bank will cut interest rates this year, according to a survey by Citigroup Inc.’s Banamex unit. The median estimate was for the central bank to cut rates 50 basis points in April, the survey e-mailed today showed.
Banco de Mexico reiterated on Feb. 13 that it may cut its target rate after consumer prices rose 3.25 percent in January from a year earlier, the slowest pace since October 2011. They have kept the benchmark at 4.5 percent for 32 straight meetings. Policy makers are scheduled to announce their next interest-rate decision on March 8.
Yields on government peso bonds due in 2022 rose one basis point, or 0.01 percentage point, to 5.06 percent, according to data compiled by Bloomberg. The price fell 0.14 centavo to 110.65 centavos per peso.
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