Mexico’s Peso Snaps Three-Day Decline on Oil Reform Bill Outlook

Mexico’s peso rose for the first time in four days on speculation two of the country’s three main parties will push for more extensive changes in the oil industry than those originally proposed by President Enrique Pena Nieto.

The peso appreciated 0.4 percent to 13.0756 per U.S. dollar at 4 p.m. in Mexico City, the most among its major Latin American peers after Brazil’s real. Mexico’s currency has weakened 1.7 percent this year.

The Democratic Revolutionary Party, or PRD, is pulling out of a group that is negotiating a bill to overhaul the oil industry, its leader Jesus Zambrano said in a Radio Formula interview today. The PRD opposed some elements of legislation under discussion, and its withdrawal from the so-called Pact for Mexico signals the remaining two parties may seek broader changes and have enough votes to pass them, said Eduardo Suarez, a Latin America strategist at Bank of Nova Scotia in Toronto.

“Markets loved the PRD’s withdrawal from the pact,” he said in an e-mailed response to questions. “My read is they took it as confirmation that the energy reform will be solid.”

Earlier this year, Pena Nieto proposed a bill to open up the energy industry to private investment. For 75 years, the nation’s oil industry has been under a monopoly from state-oil company Petroleos Mexicanos.

The peso extended gains after Zambrano disclosed the political split. The currency advanced earlier as a central bank official said policy makers would probably refrain from further reductions in target borrowing costs.

‘Favorable Turn’

Policy makers are unlikely to cut the benchmark interest rate because the nation’s economy is strengthening, Javier Guzman, a deputy central bank governor and one of five board members who set borrowing costs, said in an interview yesterday in Mexico City. Growth is picking up as the record-low 3.5 percent rate and government spending spur the economy, he said.

“This is something the market was considering after the last statement from the central bank, but this reaffirms that position,” Juan Carlos Alderete, a strategist with Grupo Financiero Banorte SAB, said in a telephone interview today. “The local news is taking a more favorable turn.”

Yields on benchmark peso bonds due in 2024 fell five basis points, or 0.05 percentage point, to 6.15 percent today, according to data compiled by Bloomberg. The price rose 0.43 centavo to 130.76 centavos per peso.

Mexico’s gross domestic product increased 0.8 percent in the third quarter from the previous three months, rebounding from a revised 0.5 percent contraction from April through June, according to a report last month.

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