Mexico isn’t planning measures to curb the peso’s advance in the wake of the central bank’s first benchmark rate cut since 2009, Deputy Finance Minister Fernando Aportela said.
The peso rallied 1.6 percent last week, the most among major emerging market currencies, after policy makers cut benchmark borrowing costs by 0.5 percentage point on March 8 to a record-low 4 percent. The peso strengthened 0.2 percent yesterday to 12.4151 per dollar, the best performance among Latin American currencies against the dollar. Markets were closed in Mexico yesterday for a holiday.
“The flexible exchange rate has been working very well for Mexico for years,” Aportela said in a March 17 interview in Panama City.
The peso jumped after central bank policy makers signaled a rate cut on March 8 was a one-time reduction and Standard & Poor’s last week boosted its outlook for Mexico’s credit rating. Officials aren’t considering capital controls or other measures to curb the currency’s advance, Aportela said
“They’ve been very clear that at least for now they are not going to intervene,” said Enrique Alvarez, the head of Latin America fixed-income research at IdeaGlobal in New York, in an interview yesterday. “It does clear in a certain sense a path for the market to go back to its bullish ways.”
Since November 2011 Mexico’s central bank has been offering $400 million daily of its reserves at a peso exchange rate at least 2 percent weaker than the previous day’s level, providing support for the currency. Mexico’s currency commission, which is made up of representatives of the central bank and Finance Ministry, suspended the sale of dollar options when introducing the daily auctions to curb volatility.
Previously the bank had been buying as much as $600 million through the options every month to bolster reserves while assuring against capital outflows and curbing gains by the peso.