Mexico Peso Tumbles After Government Signals Spending Cuts Loom

  • Currency's decline biggest among major dollar counterparts
  • Mexican peso has had the worst start to any year since 1993

Mexico’s peso fell to a record low after the government signaled more spending cuts, further damping the outlook for Latin America’s second-biggest economy.

The peso dropped 0.6 percent to 18.7763 per dollar as of 2:17 p.m. in Mexico City, the most among 16 major currencies tracked by Bloomberg. It earlier fell to a record low 18.9330. Its 8.4 percent slide since the end of December marks the worst start to any year since the 1993 redenomination.

Mexico has been caught up in a global currency rout as oil plunges and concerns over the health of the global economy deepen. The plunge in crude, which has already spurred a decline in public spending after revenue from state-owned Petroleos Mexicanos tumbled, also means that Mexico needs to prepare itself for preventative spending cuts for next year, Finance Minister Luis Videgaray said Monday in a radio interview. The oil company, known as Pemex, also needs to reduce spending, Videgaray told Radio Formula.

There are “market jitters as a result of yesterday’s announcements regarding the need of further fiscal adjustments, and its impact on growth,” Juan Carlos Alderete, a strategist at Grupo Financiero Banorte SAB in Mexico City, said in an e-mail. “Pemex is the elephant in the room. Concerns over the need to capitalize the company coupled with less policy flexibility, particularly in the fiscal front, are impacting sentiment towards Mexican assets as these could have a negative impact on risk premiums.”

Nomura Holdings Inc last week cut its growth forecast for Mexico to 2.8 percent for this year, from 3.5 percent previously, citing plummeting oil prices.

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