Mexican peso volatility rose to a one-week high as analysts forecast that the central bank will lower borrowing costs for a third time this year to shore up growth in Latin America’s second-biggest economy.
Three-month historical volatility, a measure of the magnitude of the peso’s fluctuations during the period, increased to 12.22 percent at 12:06 p.m. in Mexico City, the highest level on a closing basis since Oct. 15, according to data compiled by Bloomberg. The currency appreciated 0.2 percent to 12.9686 per dollar.
“There’s pressure obviously related to the central bank’s monetary-policy decision tomorrow,” Agustin Villarreal, fixed-income and foreign-exchange director at Grupo Financiero Invex SA in Mexico City, said in a telephone interview. “There’s a lot of volatility.”
The central bank will lower the target lending rate by a quarter-percentage point to a record low 3.5 percent tomorrow after cutting it by the same amount last month and 0.5 percentage point in March, according to the median forecast of economists surveyed by Bloomberg. The national statistics agency reported economic activity climbed 0.84 percent in August from a year earlier, slower than the 1 percent median forecast.
While Mexican consumer prices increased 0.4 percent in the first half of October, more than economists projected, annual inflation slowed to 3.27 percent, approaching the central bank’s 3 percent target.
Yields on inflation-linked bonds maturing in December 2014 were little changed at minus 0.57 percent.