| | |  Business News | February 2009 
Mexico’s Central Bank Intervenes to Halt Peso Slide
 Valerie Rota & Hugh Collins - Bloomberg
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Mexico’s central bank is buying pesos in the foreign-exchange market after the currency plunged to a record low today, the bank’s press office said.
A joint central bank and Finance Ministry committee decided Banco de Mexico would “inject liquidity,” according to an e-mail sent by the central bank’s press office. The intervention is an “extraordinary” measure beyond the bank’s normal offer to buy $400 million worth of pesos a day, the press office said.
The central bank stepped into the market after the peso tumbled to a record low for a fourth straight day. Today’s intervention adds to the $16.6 billion of foreign reserves that central bank Governor Guillermo Ortiz has spent to prop up the peso since the global financial crisis sent it tumbling in October.
“They have to be aggressive, they have to do it on a number of occasions and use larger amounts” to support the peso, said Francisco Diez, director of foreign-exchange trading at RBC Capital Markets in Toronto.
Mexico’s peso rose 0.7 percent to 14.4729 per U.S. dollar at 2:40 p.m. New York time, compared to 14.5708 yesterday. It had slumped as much as 0.9 percent earlier today to 14.7059, a record low.
‘Learned How to Play’
The peso has weakened 32 percent against the dollar over the past six months, the worst performance among the world’s major currencies, on concern the economy will sink into recession as demand in the U.S. falters for Mexican exports.
Banco de Mexico bought pesos directly from banks today, the first time it intervened in the foreign-exchange market without using an auction system since 1998, said Gabriel Casillas, an UBS AG economist in Mexico City.
“The market learned how to play” the daily auction system, said Maya Hernandez, a currency analyst with HSBC Holdings Plc in New York. “It wasn’t having any impact at all.”
Ortiz is trying to shore up the peso in a bid to rein in inflation, said Diez. Ortiz said last week in an interview in Davos, Switzerland, with Televisa television network that he’s concerned the weaker peso is fueling inflation. Annual inflation climbed to a seven-year high of 6.5 percent in December.
Grupo Bimbo SAB’s $2.4 billion purchase of George Weston Ltd.’s U.S. operations on Jan. 22 also has contributed to the peso’s decline because the company sold pesos for dollars to complete the transaction, Casillas said.
Local pension funds also sold pesos for dollars to buy some of the $2 billion of 10-year notes that state-owned oil company Petroleos Mexicanos sold Jan. 27, he said.
To contact the reporter on this story: Valerie Rota in Mexico City at vrota1
bloomberg.net; Hugh Collins in Mexico City at hcollins8(at)bloomberg.net |
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