Mexico’s Peso Rallies on Inflation; Government Sells Euro Bonds

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 0.4 percent to 12.1455 at 4 p.m. in Mexico City, the strongest closing level since Aug. 9, 2011. Its 5.8 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 fell to record lows.

Mexico’s currency increased 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 Finance Ministry said today that it sold 1.6 billion euros ($2.1 billion) in global bonds maturing 2023, the government’s first sale in the euro market in almost three years. The benchmark euro bonds sold to yield a record-low 2.81 percent as Mexico offered to buy back existing debt due in 2013, 2015, 2017 and 2020, according to an e-mailed statement from the Finance Ministry.

Dollar Auctions

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.

Videgaray later said at an event in Mexico City hosted by LatinFinance that a free-floating peso good for the economy and absorbs global financial shocks.

Bank of America Corp. said today in a note to clients that the peso will extend gains this year on higher potential gross domestic product for Latin America’s second biggest economy as legal reforms to boost growth are likely to be approved in the second half of the year. The peso will end the year at 12.1 pesos per dollar, Bank of America economist Carlos Capistran said in an e-mailed statement.

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 six basis points, or 0.06 percentage point, to 4.75 percent today, according to data compiled by Bloomberg. It’s lowest closing level on record since the debt was issued in 2005, according to data compiled by Bloomberg.

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