Mexico Central Bank Extends $3 Billion Plan to Support Peso

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Mexican policy makers said they will maintain support for the peso after its current $3 billion intervention program expires in June.

The Bank of Mexico said in a statement it will keep up the current pace of selling $52 million per day in the currency market at least through Sept. 29, continuing a policy started in March. The central bank also will sell $200 million whenever the peso sinks more than 1.5 percent during a trading session.

While the central bank’s new sales represent a small fraction of the $57 billion of daily turnover in peso trading, the announcement signals policy makers remain concerned about pressure on the peso after a 16 percent decline against the dollar over the past year. The peso slid 0.3 percent Friday to 15.2726 per dollar, the fifth straight drop.

“The bank is trying to protect the currency from the increase in volatility we’ve had the last few days,” Mario Copca, a currency and fixed-income strategist in Mexico City at Metanalisis SA, said in a telephone interview.

The peso has weakened over the past year as lower oil prices damped the outlook for foreign investment, while the prospect of higher U.S. interest rates curbed the appeal of emerging-market assets.

The Bank of Mexico started the daily auctions on March 11, and they were scheduled to run at least through June 8.

Fed Meetings

The central bank took Friday’s action partly because of possible volatility in coming months, according to the statement. Swings in the exchange rate are expected as the U.S. Federal Reserve deliberates whether to raise benchmark borrowing costs at meetings scheduled to take place through September, said Alonso Cervera, chief Latin America economist at Credit Suisse Group AG.

An increase in interest rates in the U.S. typically reduces investor appetite for higher-yielding, higher-risk assets from emerging markets.

“The Bank of Mexico is always monitoring the exchange rate because it’s one of the risk factors for inflation, and they want to make sure there’s enough liquidity to avoid disorderly movements,” Cervera said by telephone from Mexico City.

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