Videgaray Says No Need to Intervene as Mexico’s Peso Weakens

Mexico’s Finance Minister Luis Videgaray said there is no need to support the peso, which fell to its weakest in 18 months earlier today, because the market remains sufficiently liquid.

“The Mexican peso market is, fortunately, highly liquid and at the moment doesn’t require any support,” Videgaray said in an interview at the World Economic Forum in Davos, Switzerland. “We have a very liquid market and we don’t see the need to inject liquidity, to intervene.”

Mexico’s currency has slumped 3 percent against the dollar since the start of the year on concern that the value of the country’s assets will erode as the Federal Reserve reduces monetary stimulus. The peso fell 0.2 percent to 13.4326 per dollar at 12:19 p.m. in Mexico City.

Videgaray said the peso is weakening in line with other emerging market currencies and that a free-floating exchange rate helps the country absorb financial shocks.

The finance minister’s comments aren’t helping the peso, Alejandro Urbina, who helps manage $800 million in at Chicago-based Silva Capital Management LLC, said in reply to an e-mailed request for comment.

“If traders know that the government will not intervene, they sell the currency a little bit more comfortably,” he said.

Temporary Inflation

Videgaray said that inflation should fall back to within the central bank’s target range of 2 percent to 4 percent “after the first months of the year.”

Consumer prices rose more than expected in early January, pushing annual inflation to 4.63 percent, as the government raised taxes. A new 8 percent levy on junk food, a 1 peso-per liter duty on sugary drinks and an increase in sales taxes in regions bordering the U.S. to 16 percent from 11 percent took effect Jan. 1.

“This is a temporary phenomenon,” Videgaray said. “We don’t expect a trend of high inflation as these are one-time changes.”

The government doesn’t have a specific target for international reserves, after they rose at the slowest pace since 2009 last year, Videgaray said.

Reserves expanded 7.9 percent to $177 billion after rising 15 percent in 2012 and 25 percent in 2011.

“It’s important to have an adequate level of reserves” to provide a cushion for episodes of high currency volatility, Videgaray said today.

Energy Law

The finance minister said President Enrique Pena Nieto will present secondary legislation in the first days of February to implement an energy overhaul passed late last year to end Mexico’s 75-year state monopoly on oil production. The changes aim to attract investment by companies such as Exxon Mobil Corp.

A separate law passed in 2013 to boost the nation’s bank lending from the lowest rate among Latin American nations should help increase loans as soon as the second half of this year, Videgaray said.

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