Mexico Policy Makers Said to Have Approved More Peso Support

Mexican policy makers have agreed on ways to increase their support for the peso if the $52 million in daily dollar sales announced this week fail to stabilize the currency, according to a person familiar with the plans.

The country’s currency commission approved in December two additional steps that could be implemented at any time by the Finance Ministry and central bank, said the person, who asked not to be identified because the talks were private. One option is to boost the size of a $200 million auction program started in December, while the other would be to change the price being offered to increase investor participation, the person said.

Mexico has stepped up its support for the peso as plunging oil prices and speculation the Federal Reserve will raise interest rates sent the currency to the lowest level since a redenomination in 1993 on March 11. The dollar sales announced this week, planned to total more than $3 billion over the next 60 business days, amount to about one-quarter of the $12.5 billion in reserves that the central bank had planned to accumulate over the next year.

Policy makers are also considering two other measures to boost trading volume and lower volatility in the peso, both of which would require another meeting of the nation’s foreign-exchange commission, which is made up of officials from the Finance Ministry and central bank, the person said. One option would be to increase the $52 million in daily sales, while the other would be to hold unscheduled dollar auctions, the person said.

Volatility Bullets

“The most important thing is that policy makers still have bullets that they can use against volatility,” said Juan Carlos Alderete, a currency strategist at Grupo Financiero Banorte SAB in Mexico City. “It looks like they’ll exhaust these measures before using interest rates to address the currency.”

Central bank officials led by Governor Agustin Carstens have said they can’t rule out a pickup in consumer price increases if the peso remains at recent levels for a prolonged period or weakens further. The peso fell 0.6 percent to 15.4877 a dollar today in Mexico City.

The commission will meet in the next three months to review the daily-sale program and decide whether to extend it, the person said. In considering whether to move to bolster the peso, Mexico officials consider factors such as trading volumes and volatility in options trading, the person said.

Asked about the currency commission today and whether more measures have been approved, deputy finance minister Fernando Aportela told reporters in Mexico City that the panel is continuously evaluating the peso’s trading and takes action when appropriate. The commission aims to ensure adequate liquidity in the market, he said.

Ricardo Medina, a spokesman for the central bank, declined to comment on the currency commission’s private discussions.

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