Mexico’s peso is undervalued after tumbling 11 percent against the dollar in the past month, central bank Governor Agustin Carstens said.
The peso rallied today after tumbling for 11 consecutive days on concern slower economic growth will undermine commodity prices. The Mexican currency appreciated 3.8 percent to 13.5630 to the dollar as of 4:58 p.m. New York time.
“At this stage the peso is clearly undervalued,” Carstens said in an interview in Washington. “Today, we are seeing an important correction in the exchange rate and I would expect it to continue. The fundamentals of the Mexican economy are very strong and will anchor the exchange rate.”
The peso’s longest losing streak on record is fueling concern inflation will quicken and prompting traders to scrap bets on interest-rate cuts. Yields on futures contracts for the 28-day interbank rate due August 2012 rose 13 basis points yesterday to 5.04 percent, compared with the current benchmark rate of 4.5 percent.
The central bank will continue to apply a firm monetary policy to maintain control over inflation, Carstens told the newspaper Excelsior yesterday.
“What we want the market to understand is that what will anchor the value of the peso is our commitment to strong fundamentals and not just the possibility or not to intervene in the market,” Carstens said today.
Inflation Outlook
Carstens played down the impact the weaker peso will have on inflation. Even if the decline was sustained, the impact won’t be significant “right now,” he said.
“We have to consider that there are other factors that are working in favor of keeping inflation relatively low,” Carstens said. “From the aggregate demand point of view, we will not be facing inflationary pressures in the near term.” Falling commodity prices will also “help the inflationary environment.”
The inflation rate fell to 3.42 percent in August from 3.55 percent in July.
The peso has tumbled along with other emerging markets on speculation that the worldwide economic slump will curb demand for Mexican exports and slow investment into the country. While traders had begun anticipating in August that the global slump would prompt Mexican central bankers to shore up growth by lowering rates, the peso’s plunge this month to a two-year low is squelching that speculation by fueling concern import prices will surge.
U.S. Growth
The Mexican peso’s slide quickened after the Federal Reserve said on Sept. 21 that there are “significant downside risks” to growth in the U.S. economy, the destination for 80 percent of Mexico’s exports. The Fed said it plans to buy long- term debt in an effort to shore up the expansion.
“My belief is that the policy measures that the U.S. has put forward will do their work and at the beginning of next year we will start seeing a rebound in the U.S. economy,” Carstens said. “Mexico’s economy is more correlated to industrial production in the U.S. and the projections for the future are that industrial production in the U.S. will be more resilient than overall GDP, so the impact of the slowdown in the U.S. economy will not be mapped one to one to Mexico.”
The growth in exports to markets other than the U.S. will also help sustain the Mexican economy, he said, adding that there was no need for additional fiscal stimulus.
“As the dust settles from this increase in volatility and this process of adjusting portfolios, markets will be more discriminating and will realize that Mexico, from a fundamental point of view is a very good destination for investments ,” Carstens said.
Peso Volatility
Concern that economic growth in the U.S. is slowing and European nations will struggle to repay debt have roiled Mexican markets, pushing the peso down 6.4 percent against the U.S. dollar in the last two weeks. The loss was the fifth-biggest among the 16-most traded currencies tracked by Bloomberg over the period.
European nations need to follow through on measures by the European Central Bank to contain the region’s sovereign debt crisis, Carstens said today in a separate interview broadcast on Bloomberg TV.
“I think the ECB for example has made very decisive moves to keep markets working, to keep the interbank lines working to get funding out there,” Carstens said.
Source: www.bloomberg.com
The peso rallied today after tumbling for 11 consecutive days on concern slower economic growth will undermine commodity prices. The Mexican currency appreciated 3.8 percent to 13.5630 to the dollar as of 4:58 p.m. New York time.
“At this stage the peso is clearly undervalued,” Carstens said in an interview in Washington. “Today, we are seeing an important correction in the exchange rate and I would expect it to continue. The fundamentals of the Mexican economy are very strong and will anchor the exchange rate.”
The peso’s longest losing streak on record is fueling concern inflation will quicken and prompting traders to scrap bets on interest-rate cuts. Yields on futures contracts for the 28-day interbank rate due August 2012 rose 13 basis points yesterday to 5.04 percent, compared with the current benchmark rate of 4.5 percent.
The central bank will continue to apply a firm monetary policy to maintain control over inflation, Carstens told the newspaper Excelsior yesterday.
“What we want the market to understand is that what will anchor the value of the peso is our commitment to strong fundamentals and not just the possibility or not to intervene in the market,” Carstens said today.
Inflation Outlook
Carstens played down the impact the weaker peso will have on inflation. Even if the decline was sustained, the impact won’t be significant “right now,” he said.
“We have to consider that there are other factors that are working in favor of keeping inflation relatively low,” Carstens said. “From the aggregate demand point of view, we will not be facing inflationary pressures in the near term.” Falling commodity prices will also “help the inflationary environment.”
The inflation rate fell to 3.42 percent in August from 3.55 percent in July.
The peso has tumbled along with other emerging markets on speculation that the worldwide economic slump will curb demand for Mexican exports and slow investment into the country. While traders had begun anticipating in August that the global slump would prompt Mexican central bankers to shore up growth by lowering rates, the peso’s plunge this month to a two-year low is squelching that speculation by fueling concern import prices will surge.
U.S. Growth
The Mexican peso’s slide quickened after the Federal Reserve said on Sept. 21 that there are “significant downside risks” to growth in the U.S. economy, the destination for 80 percent of Mexico’s exports. The Fed said it plans to buy long- term debt in an effort to shore up the expansion.
“My belief is that the policy measures that the U.S. has put forward will do their work and at the beginning of next year we will start seeing a rebound in the U.S. economy,” Carstens said. “Mexico’s economy is more correlated to industrial production in the U.S. and the projections for the future are that industrial production in the U.S. will be more resilient than overall GDP, so the impact of the slowdown in the U.S. economy will not be mapped one to one to Mexico.”
The growth in exports to markets other than the U.S. will also help sustain the Mexican economy, he said, adding that there was no need for additional fiscal stimulus.
“As the dust settles from this increase in volatility and this process of adjusting portfolios, markets will be more discriminating and will realize that Mexico, from a fundamental point of view is a very good destination for investments ,” Carstens said.
Peso Volatility
Concern that economic growth in the U.S. is slowing and European nations will struggle to repay debt have roiled Mexican markets, pushing the peso down 6.4 percent against the U.S. dollar in the last two weeks. The loss was the fifth-biggest among the 16-most traded currencies tracked by Bloomberg over the period.
European nations need to follow through on measures by the European Central Bank to contain the region’s sovereign debt crisis, Carstens said today in a separate interview broadcast on Bloomberg TV.
“I think the ECB for example has made very decisive moves to keep markets working, to keep the interbank lines working to get funding out there,” Carstens said.
Source: www.bloomberg.com
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