- Decisions on intervention program to be made end of next month
- Reserves have fallen $21 billion in 2015 amid dollar sales
Central bank Governor Agustin Carstens said it’s too early to know if Mexico will end the intervention it’s used this year to bolster the slumping peso, and that policy makers will need to watch developments from now until the end of January in order to make a decision.
Speaking in an interview with El Financiero-Bloomberg TV hours after his board raised Mexico’s key rate for the first time in seven years to protect the peso, Carstens said he’s comfortable that the nation’s current international reserves and flexible credit line from the International Monetary Fund are enough to face any volatility in international markets.
Mexico’s reserves have fallen about $21 billion this year as the central bank sold dollars to support the peso after it was swept up in an emerging-market rout fueled by concern the U.S. would raise interest rates, reducing the appeal of riskier assets. Banco de Mexico lifted borrowing costs on Thursday by a quarter point from a record low 3 percent a day after an increase by the Federal Reserve, saying that failing to react to the U.S. move could lead to a disorderly selloff in the peso and spur faster inflation.
"At the end of January, we’ll return to evaluate" the currency intervention program, Carstens said. "It’s a little early to know if there are conditions to adjust this mechanism, including the possibility of removing it."
Mexico’s currency commission last month scrapped part of the peso intervention program, ending dollar auctions with no minimum price, citing “the recent relatively more stable performance of financial markets.” While the peso lost 23 percent against the dollar in the past year and a half through Thursday, only in the past week as the Fed liftoff approached did the currency fall beneath its a previous record low reached in September.
Mexico’s peso gained 0.3 percent on Friday to 17.0021 per dollar at 12:08 p.m. in New York.
Decisions about changes in Mexico’s intervention are made by the nation’s currency commission, composed of officials from the central bank and Finance Ministry, including Carstens. Under the current program, the central bank offers $200 million daily in auctions triggered when the peso weakens by 1 percent from the previous day’s fixed rate and an additional $200 million in daily sales when the currency declines by at least 1.5 percent.
The program is set to expire at the end of January, and the commission had said in mid-November that it would evaluate whether to extend the intervention as its scheduled end approaches.
Finance Minister Luis Videgaray, who heads the six-member currency commission, said in an interview with Radio Formula on Friday that Mexico will continue to ensure liquidity in the peso market.
In another interview Friday with Radio Red, Carstens said it’s "very likely" that Mexico’s economy will grow more than 3 percent next year, spurred by an acceleration in the U.S. In its quarterly inflation report in November, the central bank forecast growth of 2.5 percent to 3.5 percent for 2016.