Mexico’s Peso Declines Most in Emerging Markets After Rate Cut

Mexico’s peso dropped to a one-month low as last week’s unexpected cut in interest rates made the currency less attractive to international investors.

The peso slid for a second day, declining 0.8 percent to 13.0302 per U.S. dollar at 4 p.m. in Mexico City, the weakest closing level since May 5. The slide was the biggest among 24 major emerging-market dollar counterparts tracked by Bloomberg.

The central bank reduced its target lending rate on June 6 by 0.5 percentage point to a record low 3 percent to support Latin America’s biggest economy after Brazil. The decision surprised all 20 analysts surveyed by Bloomberg, who had forecast no change. The peso has sunk 1.3 percent over two days, the most among 24 emerging-market currencies.

“It’s a continuation of Friday,” Eduardo Rodriguez, a trader at Casa de Bolsa Finamex SAB, said by phone from Guadalajara, Mexico. “Logically, cutting the rate reduces flows.”

The central bank reduced its economic growth forecast for this year on May 21 to between 2.3 percent and 3.3 percent from a previous estimate of 3 percent to 4 percent after the U.S. economy, the biggest buyer of Mexican exports, stalled in the first quarter.

Fixed-rate government bonds maturing in 2024 decreased 0.55 centavo to 134.21 centavos per peso, according to data compiled by Bloomberg. The yield increased five basis points, or 0.05 percentage point, to 5.67 percent.

The national statistics agency reported today that Mexican consumer prices declined 0.32 percent last month, less than economists surveyed by Bloomberg had forecast, as the cost of some farm products increased. Annual inflation accelerated to 3.51 percent from 3.5 percent in April, which was the slowest pace since October.

The price of inflation-linked bonds due in 2016 rose 0.24 centavo to 109.79 centavos as the yield fell 12 basis points to 0.2 percent, according to data compiled by Bloomberg.