Mexican Peso Slides on Carstens Hint at Interest-Rate Reduction

Mexico’s peso fell the most in four weeks after central bankers signaled that a further slowdown in inflation could prompt them to lower interest rates.

The currency dropped 0.5 percent to 12.6516 per U.S. dollar at 9:26 a.m. in Mexico City. It would be the peso’s biggest decline on a closing basis since Dec. 21. Yields on peso bonds due in 2022 fell five basis points, or 0.05 percentage point, to 5.26 percent, dropping 14 basis points this week.

“I would expect the knee-jerk to be Mexico peso negative on the lower-rates expectation,” Eduardo Suarez, a Latin American currency strategist at Bank of Nova Scotia, said in a telephone interview from Toronto. While the peso will likely rebound, it’s declining today on “the possibility of lower yields.”

The central bank’s board, led by Governor Agustin Carstens, left the overnight lending rate at 4.5 percent for the 32nd consecutive meeting, as forecast by all 19 analysts surveyed by Bloomberg. In a statement accompanying the decision policy makers said that if a “downward trend in general and core inflation” is confirmed, “a reduction in the one-day interbank interest rate may be advisable.”

Annual inflation last month slowed to 3.57 percent, within the central bank’s target range of 2 percent to 4 percent for the first time since May.

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