Mexico’s Peso Strengthens as Carstens Damps Rate Cut Speculation

Mexico’s peso rose for the first time in three days after central bank Governor Agustin Carstens told Radio Formula that policy makers would be “very careful” before cutting benchmark lending rates for the first time since July 2009.

The currency appreciated 0.6 percent to 12.6194 per dollar at 4 p.m. in Mexico City after falling yesterday to 12.7000, the weakest close since Jan. 9.

The peso advanced the most among major Latin American currencies after Carstens said in an interview yesterday with Radio Formula that while policy makers may lower the 4.5 percent target rate if Mexican inflation and global growth continue to slow, now is not the “right moment” to do so.

“The peso has gotten some relief today, so there may be a bit of a reaction to the clarification that Carstens gave us,” Eduardo Suarez, a Latin America foreign-exchange strategist at Bank of Nova Scotia, said in a telephone interview from Toronto.

Government peso bonds fell, pushing yields on securities due in 2022 up five basis points, or 0.05 percentage point, to 5.14 percent, according to data compiled by Bloomberg.

Yields fell yesterday to their lowest level since July after the central bank said in its statement Jan. 18 that if a “downward trend in general and core inflation” is confirmed, “a reduction in the one-day interbank interest rate may be advisable.” Policy makers left the target rate unchanged for a 32nd straight time.

The Finance Ministry said today in a statement that most of the government’s financing needs will be met in the local market, supplemented by global issuance to diversify the funding sources.

The federal government will have gross financing needs of 1.28 trillion pesos ($101.5 billion) in 2013, or about 7.7 percent of gross domestic product, according to its 2013 financing plan released today. That compares with 1.27 trillion pesos, or 8.1 percent, in 2012.

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