April 26, 2013 / 6:05 PM / in 4 years

UPDATE 1-Mexico's Carstens: could resume dollar 'put' option auctions

2 Min Read

ACAPULCO, Mexico, April 26 (Reuters) - Mexico could re-introduce auctions of dollar 'put' options as a measure to stem peso gains although this is not planned at the moment, Bank of Mexico Governor Agustin Carstens said at a news conference on Friday.

Mexico has absorbed $160 billion in new foreign investment in its financial markets in the last three years, pushing stocks and bonds to record highs.

The peso has gained almost 6 percent this year despite an interest rate cut in March. Mexico has suspended dollar auctions on days of sharp peso losses and analysts have said a next step could be re-starting option auctions.

"That is a mechanism that we could use in future," Carstens told reporters on the sidelines of a banking conference, after the central bank left interest rates at 4 percent.

"I am not anticipating that, far from it, but certainly that is one of the instruments we have used in the past."

Under the program, the Banco de Mexico auctions the right to sell dollars back to the central bank. If the peso appreciates strongly, a bank may exercise its option and it will get more pesos for its dollars than it would on the floating peso market.

Carstens firmly ruled out capital controls to tame foreign investment inflows, as Brazil has done, and said Mexico was far from a reverse of flows. He said earlier on Friday the peso was still undervalued and would likely tend to appreciate further.

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