| | |  Business News | March 2009 
Mexico’s Peso Falls to Record on Worsening Economic Outlook
 Valerie Rota - Bloomberg
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Mexico’s currency tumbled to a record for a third day on concern a worsening global economic slump will further erode dollar flows to Latin America’s second-biggest economy.
The peso slid 1.1 percent to 15.4225 per U.S. dollar at 5 p.m. New York time, from 15.2550 on Feb. 27. It slumped as much as 1.7 percent to 15.5105 per dollar. Banco de Mexico failed to stem the drop in the peso after it purchased $400 million worth of its own currency at a local auction. A Mexican central bank survey published today showed economists pared their forecast for the peso’s gain this year for a sixth straight month.
“There are jitters hurting the peso amid the negative outlook for the global economy,” said Jaime Ascencio, a fixed- income analyst in Mexico City at Actinver SA, the country’s biggest independent money manager.
The peso joined a decline in all of the 26 most-traded emerging-market currencies. Demand for higher-yielding assets waned after billionaire investor Warren Buffett forecast the economy will be “in shambles” this year and perhaps longer. The Dow Jones Industrial Average fell below 7,000 for the first time since 1997.
Mexico’s currency has tumbled 33 percent over the past six months, the worst performance among the world’s major currencies, as exports to the U.S. dropped and remittances slowed.
The peso will strengthen to 14.1 per dollar by the end of 2009, according to the average of 30 estimates in the central bank survey taken last week. In last month’s survey, economists estimated the peso would advance to 13.5 per dollar by year-end.
Peso Purchases
The decline in the Mexican peso has been excessive and the currency is undervalued, said Finance Minister Agustin Carstens to reporters in Porto, Portugal yesterday. Foreign exchange reserves, which have been eroded by peso purchases from the central bank to prop up the currency, will increase this year, Carstens said. Banco de Mexico has spent more than $18 billion of foreign reserves since October to stem the peso’s slide.
Mexican exports to the U.S., the Latin American country’s biggest trading partner, fell 15 percent in December from a year earlier, the U.S. Commerce Department said earlier this month. Remittances declined 12 percent in January, Banco de Mexico said last week.
Other Mexican government reports this month also showed dollar flows from foreign direct investment fell 32 percent to $18.6 billion last year while revenue from foreigners visiting Mexico fell 3.8 percent in the fourth quarter.
In the central bank survey published today, economists lowered their 2009 economic growth forecast, predicting the economy will shrink 1.9 percent this year. They forecast a 1.2 percent contraction for 2009 in last month’s survey.
Yields on Mexico’s 10 percent bond due December 2024 rose 31 basis points, or 0.31 percentage point, to 9.15 percent. The bond’s price fell 2.75 centavos to 107.01 centavos per peso, according to Banco Santander SA.
To contact the reporter on this story: Valerie Rota in Mexico City at vrota1(at)bloomberg.net. |
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