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Mexico Peso Falls as Retail Decline Adds to Rate Cut Speculation

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Oct. 21 (Bloomberg) -- Mexico’s peso fell the most in a month after a report showed retail sales unexpectedly dropped in August, boosting speculation that policy makers will cut the target lending rate this week to support the economy.

The currency slid 1 percent to 12.9893 per dollar at 4 p.m. in Mexico City on the prospect that reduced borrowing costs will make that nation’s assets less attractive abroad. That was the weakest closing level since Oct. 15. Yields on peso bonds maturing in December increased 0.16 percentage point, or 16 basis points, to 3.55 percent, according to data compiled by Bloomberg.

“The expectation that this week the central bank will cut rates obviously reduces incentives for dollar inflows,” Eduardo Rodriguez, a trader at Casa de Bolsa Finamex SAB, said in a telephone interview from Guadalajara, Mexico.

Retail sales in Latin America’s second-biggest economy fell 2.2 percent in August from a year earlier, the national statistics agency reported today. The median forecast of analysts surveyed by Bloomberg was for a 1.2 percent increase.

JPMorgan Chase & Co. lowered its economic growth forecast for this year to 1.4 percent from 1.8 percent, saying today in a research report to clients that it expects Mexico’s policy makers to lower the benchmark rate by a quarter-percentage point on Oct. 25 to 3.5 percent.

Grupo Financiero Santander Mexico SAB today cut its growth forecast for this year to 1.2 percent from 1.5 percent previously, citing “lower-than-expected performance of domestic activities such as construction” and “weaker-than-expected consumption spending.”

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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