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Mexico’s Peso Risks Becoming Overvalued, Ortiz Says

Guillermo Ortiz, governor of the central bank of Mexico
Guillermo Ortiz, governor of the central bank of Mexico. Photographer: Andrew Harrer/Bloomberg

Oct. 25 (Bloomberg) -- Mexico’s peso is at risk of becoming overvalued because market-friendly trading rules may attract investors as other countries take steps to curb currency appreciation, said former central bank Governor Guillermo Ortiz.

The currency has gained 6.8 percent since the end of August and 26 percent since touching a low of 15.5667 pesos on March 9, 2009. An overvalued peso would hurt Mexico’s competitiveness and could cause “bubbles everywhere,” Ortiz said yesterday at a conference in Toluca, Mexico.

“The risk is that we’re the only ones with no barriers to entry, and they could flood us more and the currency could appreciate to excessive levels,” Ortiz said.

Developing countries are intervening in currency markets to protect their economies against inflows of capital in what Brazil’s Finance Minister Guido Mantega has called a “currency war.”

Mantega said Oct. 18 that his country will increase a tax on foreigners’ investments in fixed-income securities to 6 percent from 4 percent. Bank of Thailand Governor Prasarn Trairatvorakul said Oct. 21 the central bank is studying steps to curb excessive volatility in the baht.

Mexico’s open markets have worked well, Ortiz said. Still, with other countries taking steps to exert control over their currencies, Ortiz said Mexico might need to follow suit.

“We shouldn’t be the only ones that are left out,” he said.

The Mexican currency declined 0.2 percent to 12.3612 pesos per U.S. dollar at 5:00 p.m. New York time.

U.S. Is Vulnerable

The biggest threat to Mexico’s economy is a “double-dip” recession in the U.S., Ortiz said, adding that such an outcome is unlikely. Mexico’s economic recovery is being driven “almost exclusively” by external demand, he said.

Mexico’s gross domestic product will grow 4.65 percent in 2010, according to a survey of economists by Citigroup Inc.’s local Banamex unit. Latin America’s second-biggest economy contracted 6.5 percent in 2009, the steepest slump since the 1930s.

To contact the reporters on this story: Jonathan J. Levin in Toluca, Mexico at jlevin20@bloomberg.net; Thomas Black in Monterrey at tblack@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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