Mexico Peso Set for Weekly Gain as Rate Cut Fuels Growth Outlook

Mexico’s peso headed to its second straight weekly gain after the central bank cut benchmark lending rates, fueling speculation economic growth will pick up.

The peso has appreciated 0.8 percent this week to 13.0598 at 8:28 a.m. in Mexico City. It was down 0.1 percent today. Yields on peso bonds maturing in 2024 fell 0.01 percentage point today to 6.22 percent, leaving them down 0.15 percentage point for the week, according to data compiled by Bloomberg.

Mexico’s local-currency securities have benefited since policy makers surprised analysts by cutting their benchmark interest rate on Sept. 6, the second reduction this year, saying the economy experienced a significant and unexpected slowdown in the second quarter. The cut implies faster growth in the future, helping lure capital into the country, according to Roberto Galvan, a trader at Intercam Casa de Bolsa SA.

“The fact that there was a cut was very beneficial,” Galvan said in a phone interview from Mexico City. “They’re taking action to avoid a recession.”

The currency got an extra boost as concern eased that the U.S. will start to reduce monetary stimulus this month and that an attack on Syria is imminent, Galvan said.

Citigroup Inc. recommended Mexico’s local-currency bonds on Sept. 10 in part on the prospect that policy makers will reduce borrowing costs to jumpstart growth.

Grupo Financiero Santander Mexico SAB projected this week that the central bank will cut the reference rate by 0.25 percentage point next month after the central bank reduced it by that amount on Sept. 6 to a record low of 3.75 percent.

To contact the reporter on this story: Ben Bain in Mexico City at bbain2@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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