Mexican Peso Falls to Two-Year Low as Central Bank Dims Outlook

Mexico’s peso dropped to a two-year low after the central bank said the outlook for Latin America’s second-biggest economy worsened and as crude oil tumbled, damping export revenue.

The currency declined 1.4 percent to 14.3591 per dollar at 4 p.m. in Mexico City, the biggest drop since August 2013 and the weakest closing level since May 2012. On the week, the peso lost 3 percent, the most among 16 major currencies tracked by Bloomberg.

The central bank’s board held the target lending rate today at a record low 3 percent, saying in a statement that economic risks have deepened since its October decision amid weaker global momentum. The slump in the currency may spur inflation, policy makers said.

“It’s a panic, an overreaction,” Claudio Irigoyen, the head of Latin American fixed-income and foreign-exchange strategy at Bank of America Corp., said by phone from New York. “When an economy grows more slowly, you have weaker currencies because you expect monetary policy to be less tight.”

Banco de Mexico has cut rates by 1.5 percentage points in the past two years to boost an economy whose growth has missed analysts’ estimates in eight of the past 10 quarters. The central bank expects growth to accelerate to 3 percent to 4 percent in 2015 from 2 percent and 2.5 percent this year.

In the U.S., Mexico’s biggest trading partner, employers added more jobs in November than the most optimistic forecast among economists surveyed by Bloomberg, adding to speculation that the Federal Reserve will begin raising interest rates sooner than expected.

West Texas Intermediate dropped 1.5 percent today while the Mexican blend fell 1.5 percent. Mexico ended last year the nation’s 75-year energy monopoly in a bid to attract more foreign investment and stoke growth.

Central bank Governor Agustin Carstens said today in an interview in Santiago today that the fall in oil prices shouldn’t hurt energy investments in Mexico, since prices will eventually rebound with demand.

Before it's here, it's on the Bloomberg Terminal.