Mexico Finance Head Assured on Debt Plan Even With Rate Rise

  • Meade expects S&P, Moody’s will maintain Mexico’s credit grade
  • Currency commission has found peso market sufficiently liquid

Mexican Finance Minister Jose Antonio Meade said he’s confident that increases in the key interest rate and the decline in the nation’s currency will have no more than a marginal effect on the nation’s debt level and fiscal balance.

Meade, who replaced Luis Videgaray three weeks ago, predicted Mexico will maintain its credit rating, on negative outlook at S&P Global Ratings and Moody’s Investors Service, given its plan to have a primary surplus of 0.4 percent of gross domestic product in 2017. The nation’s currency commission, which Meade leads, has refrained from selling dollars to bolster the currency because the market has maintained sufficient liquidity even as the peso tumbled to a record low, he said in an interview.

Mexico’s central bank lifted the nation’s interest rate on Thursday by a half-point to 4.75 percent, the highest level since 2009. The increase reflected concern for the nation’s public finances and growth and improving odds for Donald Trump to win the U.S. presidential election, which sent the peso to an all-time low near 20 per dollar earlier this week.

"In my view, and according to the very standards set by the ratings companies, there wouldn’t be elements that would bring about a change" in Mexico’s credit grade, Meade said.

Selloffs this year in Mexico’s currency have forced policy makers to respond with interest-rate increases and spending cuts to reassure investors about the nation’s economic management, protect it against inflation and prevent further market instability. Traders often use the peso, the most actively-traded currency in emerging markets, to hedge risks, which in turn makes the currency more vulnerable to price swings.

On Sept. 8, a day after being sworn in, Meade went to Congress’s lower house to present President Enrique Pena Nieto’s budget proposal for next year. The plan estimates that the broadest measure of debt will reach 50.5 percent of gross domestic product this year and drop to 50.2 percent next year. If a rebound in oil prices gives the nation revenue next year that exceeds the ministry’s expectations, the government will use those funds to reduce the nation’s debt burden, Meade said.

Meade suggested that the peso exchange rate incorporated in the final budget passed by Congress may need to be changed from the 18.2 per dollar assumption in the proposal sent to lawmakers, given that private-sector analysts have lowered their forecasts for the currency since the proposal was presented earlier this month. The peso advanced 0.9 percent to 19.3418 per dollar on Friday.

Meade, 47, is taking his second turn as finance minister after serving in the role for almost two years at the end of the presidency of Pena Nieto’s predecessor, Felipe Calderon, of the rival National Action Party. He was one of the few cabinet members who stayed on to become part of Pena Nieto’s government in December 2012, serving as Mexico’s foreign minister before heading the Social Development Ministry.

With a bit more than two years in his job this time around -- if he serves through the end of Pena Nieto’s term in 2018 -- Meade said he wants his greatest achievement to be contributing to the further strengthening of the nation’s macroeconomic management.

"Mexico has more than two decades of distinguishing itself for economic prudence," he said. "It makes sense that we look to end our period of counter-cyclical policy and return little by little to primary surpluses, with a level of debt that’s reasonable and manageable."

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