Mexico’s Peso Rallies on Inflation; Bond Yields Fall to Records
Mexico’s peso rose to the strongest since August 2011 after a report showed faster-than-forecast inflation last month, damping speculation that policy makers will cut interest rates to slow the currency’s advance.
The peso rose 0.5 percent to 12.1366 at 8:51 a.m. in Mexico City, the strongest level on a closing basis since Aug. 9, 2011. Its 5.9 percent gain against the dollar in 2013 is the best performance among the 16-most traded currencies tracked by Bloomberg. Yields on benchmark local-currency bonds headed to record lows.
Mexico’s peso jumped after the national statistics agency said today that annual inflation accelerated to 4.25 percent in March from 3.55 percent in February and above the 4.2 percent median estimate of economists surveyed by Bloomberg. The report damped speculation from some analysts that policy makers would follow their 0.5 percentage point cut to the benchmark rate in March with another reduction, according to Rafael Camarena, an economist at Grupo Financiero Santander Mexico SAB.
“Today’s inflation data that came in above expectations reduced the possibility that Banco de Mexico could cut rates,” Camarena said by phone from Mexico City.
Mexico’s currency commission said yesterday it was ending daily dollar auctions in place since November 2011 designed to shore up the peso, a sign policy makers are no longer concerned about declines. Finance Minister Luis Videgaray said today in an interview broadcast on Radio Formula that a free-floating peso was best for Mexico and that policy makers sent a “clear signal” that last month’s rate cut wasn’t the start of a cycle.
Yields on inflation-linked bonds known as Udibonos maturing in December 2014 tumbled six basis points to 0.7 percent, according to data compiled by Bloomberg.
Yields on Mexico’s peso bonds due in 2024 fell five basis points, or 0.05 percentage point, to 4.76 percent today, according to data compiled by Bloomberg. It’s the lowest ever on a closing basis.
Mexico’s government plans to sell its first euro- denominated bonds in almost three years and is offering to buy back existing debt to benefit from plunging yields. The government will sell 10-year bonds today and buy back euro bonds due 2013, 2015, 2017 and 2020 on April 15, according to a statement distributed by PR Newswire.
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