EMERGING MARKETS-Mexico's peso flat on renewed rate cut threat

Tue Feb 12, 2013 3:01pm EST

MEXICO CITY, Feb 12 (Reuters) - Mexico's peso was little
changed on Tuesday after the country's central bank governor
reaffirmed his threat to cut interest rates following the
biggest slump in industrial output in nearly four years.
    The currency rose 0.09 percent to trade at 12.7260 per
dollar after central bank governor Agustin Carstens reiterated
the Bank of Mexico's new stance that lower inflation and slower
growth might lead the bank to cut the benchmark interest rate.
    "Let's say the environment could become such that it would
be advisable to lower interest rates," he told Milenio news
network in an interview late on Monday. "It's not a done deal,
but it would be fair to say that the economy has moved into an
area where it is reasonable to consider that possibility."
    Yields on short term interest rate swaps edged
lower as the market increased bets on the chance of a 25 basis
point cut by March 8 to around 86 percent on Tuesday, from
around 30 percent a day earlier. The swaps market has fully
priced in a cut by April. 
    On Monday, data showed Mexican industrial production in
December posted its biggest monthly loss since a deep recession
four years ago as factories and builders slowed, bolstering bets
that the central bank could cut interest rates. 
    Analysts, however, said markets have mostly absorbed the
likelihood of a one-off cut along with the country's softening
growth, which has kept the peso from falling off dramatically. 
    Indicators of growth have been slowing, "inflation has been
falling, but it's not like they are falling off a cliff," said
Win Thin, a currency strategist at Brown Brothers Harriman.
    In an environment where many emerging market countries like
Turkey, Poland, and Hungary are easing monetary policy, he
added, "4.5 percent is still pretty good." 
    The Bank of Mexico has kept interest rates on hold since
mid-2009, as it has aimed to balance dueling goals of low
inflation and economic muscle.
    Thin said he expects the peso to continue to trade in the
12.60 to 13.00 per dollar range in the short term. 
    Brazil's real has entered the traditional Carnival lull that
halts Brazilian markets for most of the week. 
    
    Latin American FX prices at 18:54 GMT
 Currencies                     daily   YTD %
                                    %  change
                               change  
                       Latest          
 Brazil real           1.9715    0.00    3.48
                                       
 Mexico peso          12.7260    0.09    1.09
                                       
 Chile peso           471.600    0.15    1.51
                            0          
 Colombia peso        1780.20    0.22   -0.80
                           00          
 Peru sol              2.5720    0.27   -0.82
                                       
 Argentina peso        4.9950   -0.05   -1.65

 Argentina peso        7.6500    0.39  -11.37
FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.