Finance Minister Warns Mexico Investors to Expect the Unexpected to Save Peso Nacha Cattan - Bloomberg
go to original February 20, 2016

Will Mexico's Peso Plan Work? (bloomberg)

Mexican Finance Minister Luis Videgaray told investors to expect the unexpected after this week’s unprecedented steps to save the peso from the world’s worst rout.

Surprise moves such as the ability to sell dollars in the spot market with no advance notice and raise interest rates whenever needed are a key element to counter speculators who pushed the peso to a record low this month, Videgaray said in an interview Friday. Stemming declines in the currency is key to keeping inflation expectations under control, protecting Mexico’s consumers and preserving economic growth, he said.

"We have reserves and a full set of tools on the monetary and currency side to intervene if necessary,” he said. “And that’s an important message we wanted to convey to the market. And it seems the market has listened."

The currency strengthened 0.3 percent after the minister’s comments, leaving it up 3.5 percent since Tuesday, the day before Videgaray and central bank Governor Agustin Carstens announced a surprise increase to the benchmark interest rate and plans to sell dollars directly to banks to support the currency. A plunge in global oil prices and a slowdown in demand for exports has weighed on Mexico’s peso, which has weakened 18 percent in the past 12 months and it’s still down 6 percent this year, the worst performance among the world’s most-traded currencies.

Videgaray said one of the effects of increasing the central bank’s overnight rate by half a percentage point to 3.75 percent was to make it "a little bit more expensive to short the peso" by raising the cost to borrow the currency.

The currency commission, comprised of central bank and ministry officials, will decide when to intervene with discretionary dollar sales, he said.

Read the rest at Bloomberg

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