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 Business News | June 2005 
'Superpeso' Tipped To Go Higher
 John Authers - Financial Times
The peso is being dubbed the "superpeso" once more, after it surged last week to approach its strongest level against the dollar in 18 months. By the close on Friday it had reached 10.83 pesos to the dollar down 10 centavos for the week, and down sharply from a high of 11.61 pesos set late last year.
A number of factors seem to be pushing the currency. Analysts said that high interest rates, induced by an aggressive monetary policy, appeared to be the main factor, while a reduction in political tensions over the past few weeks and the general strength of Latin American currencies have also played a part.
The currency appears to be having an effect on trade flows as well as on consumers' behavior. Imports of consumer goods in the first quarter were up 26 percent compared with last year, as consumers used their greater buying power, while manufacturing exports rose by only 5.6 percent.
A strong recovery in the nation's low levels of credit could could also be behind increased sales by retailers. Consumer lending by banks has increased by 46 percent over the past year, according to the central bank.
The peso looks likely to stay strong through the summer. Alfredo Thorne, economist at JPMorgan in Mexico City, said it was a "no-brainer" that the peso would remain strong in the near term, thanks to the nation's high interest rates, which were approaching 10 percent and created an attractive "carry trade" for foreign investors.
The Bank of Mexico has tightened monetary policy 12 times since the beginning of last year. Everardo Elizondo, one of the governors, this week told a conference that the peso's performance was in line with several other Latin American currencies. He said: "That similarity implies that they have a factor in common to explain this and that surely would include the peak in raw materials prices."
Thorne added that the political situation had improved in recent weeks, with the government abandoning an attempt to impeach Mexico City Mayor Andrés Manuel López Obrador, the leftwing front-runner for next year's presidential election.
The greatest impact appears to be on retailers, led by WalMart de Mexico, Wal-Mart's largest division, which controls roughly half of the Mexican retail market. Wal-Mex's same-store sales grew by 5.4 percent in the past year, in real terms.
According to Banamex, the Mexican division of Citigroup, this might be more attributable to the expansion of consumer credit from banks. In particular, the entry of GE Capital offering retail credit to relatively poor Mexicans in the last year has significantly boosted sales.
It said GE's loan portfolio was growing at an annualized rate of 130 percent, and now accounted for 1.5 percent of sales by WalMex and by Soriana, its largest rival, up from only 0.5 percent a year ago. |
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