Top Forecaster Says Mexico May Raise Rate If Peso Hits 18.80

  • Vector analyst Navarrete also sees possibility of dollar sale
  • Banxico surprised markets in February with half-point increase

Mexico’s central bank may be forced to lift borrowing costs if the peso keeps weakening, according to an economist ranked by Bloomberg as the top forecaster of the Mexican economy.

Vector Casa de Bolsa’s Rodolfo Navarrete, the most accurate out of 15 forecasters for the fourth quarter, said policy makers may raise the 3.75 percent benchmark rate and could sell a small amount of dollars, if the currency falls past 18.80 per dollar. Goldman Sachs Group, Inc. also said Wednesday that the nation’s exchange rate commission may act to bolster the peso.

The currency has fallen 6.9 percent against the U.S. dollar this month, the worst performance after the South African Rand among 16 major currencies tracked by Bloomberg. The peso fell on Wednesday as much as 1.1 percent to 18.4819 after U.S. Federal Reserve policy makers indicated that a June interest-rate increase was likely if the world’s biggest economy continued to improve.

Mexico’s central bank surprised markets by announcing a half-point rate hike Feb. 17 at an unscheduled meeting, in order to head off inflation from a peso that had weakened to record lows. It also teamed up with the Finance Ministry to start discretionary dollar sales. Navarrete had correctly forecast a rate increase outside of scheduled sessions six days before the announcement. Banco de Mexico’s next scheduled policy meeting is June 30.

Not all analysts expect the central bank to take action. The risk of imminent intervention by the central bank is low, according to a note published Wednesday by Brown Brothers Harriman & Co. Alonso Cervera, chief Latin America economist at Credit Suisse Group AG, said that while the central bank retains the right to take action at any time, "the bank’s most preferred course of action would be to move at pre-scheduled meetings."

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