Mexico May Expand Auctions, Won’t Limit Peso’s Gains

Mexican Finance Minister Ernesto Cordero said policy makers may raise the size of monthly dollar option auctions and said officials won’t intervene directly in the peso market no matter how much the currency advances.

“It’s one of the possibilities we’re exploring right now,” Cordero said, referring to the monthly auctions, in an interview at Bloomberg’s headquarters in New York.

Mexico auctions $600 million in dollar options per month, a system that bolsters foreign reserves as it takes dollars out of the market and eases appreciation pressure on the peso, which has strengthened 2.1 percent this year, the most among Latin American currencies tracked by Bloomberg. The auction program is described as a “market-friendly mechanism” by JPMorgan Chase & Co. because it’s announced in advance.

Mexican policy makers haven’t followed their regional peers in trying to stem currency gains with restrictions on capital inflows. Investors poured money into emerging markets last year as near-zero interest rates in the U.S. and Europe prompted them to seek higher returns in developing countries.

“We don’t have a threshold,” Cordero said when asked if there was a level for the peso at which officials would consider intervening. “The capital controls policies of some of the other countries in Latin America don’t have any effect at all.”

A stronger currency can hurt exporters by making their products more expensive in dollar terms. About 80 percent of Mexican goods sent abroad go to the U.S.

The peso weakened 0.1 percent to 12.0823 at 6:57 p.m. in New York.

Regional Intervention

Brazil tripled to 6 percent in October a tax on foreign purchases of fixed-income securities in a bid to contain gains in the real, which has advanced 39 percent gains since the end of 2008, the second-most among 16 major currencies tracked by Bloomberg, trailing the Australian dollar.

Chile triggered the biggest fall in its peso in 20 years on Jan. 4 when the central bank said it would buy $12 billion in the spot currency market.

Investors pulled $4.6 billion from exchange traded funds that track developing-nation stocks in the week ended Feb. 2, Bank of America Merrill Lynch wrote yesterday, citing data from research firm EPFR Global. Outflows from all emerging-market equity funds totaled $7.2 billion, the most since January 2008.

Cordero said he doesn’t expect a sudden reversal in capital inflows to Mexico, saying they may retreat gradually over time.

Cetes Investment

Foreign investment in short-term Mexican notes known as Cetes had risen more than eightfold as of Jan. 31 from a year earlier. Inflows increased to 147.6 billion pesos ($12.2 billion) last month from 100.6 billion pesos in December, according to the central bank’s website

The increase in peso bond yields over the past months won’t deter the government from issuing debt this year, Cordero said.

“Even with the increase in the rates, they’re still very reasonable,” Cordero said. “We still feel there are some opportunities in the debt market.”

The yield on Mexico’s benchmark 10 percent bond due 2024 has increased 152 basis points to 7.78 percent since hitting a low of 6.26 percent on Oct. 12.

The government forecasts the economy will expand about 4 percent this year, more than the 3.7 percent median estimate of 13 analysts surveyed by Bloomberg. Cordero said today that the economy probably grew 5.3 percent to 5.6 percent last year.

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