MEXICO CITY, June 26 Mexico's defenses against
fluctuations in capital flows might fall short given the recent
shift in global market sentiment, Banco de Mexico board member
Manuel Sanchez said on Wednesday.
In a presentation delivered in Switzerland, Sanchez said
capital inflows to Mexico had been high but booms often ended in
a sudden stop, for example due to expectations for tighter
monetary conditions in advanced economies.
The Mexican peso has lost more than 10 percent since
speculation began in May that the U.S. Federal Reserve might
start unwinding its stimulus.
Losses accelerated after Fed Chairman Ben Bernanke last week
laid out a roadmap to slow the pace of the U.S. central bank's
bond buying, a program that has fueled investor appetite for
emerging market assets like Mexico's.
Sanchez said although Mexican markets had so far adjusted in
an orderly way to the change in market mood, with foreign
holdings of local debt remaining high, officials had to remain
Policy measures, including high international reserves, a
flexible credit line with the International Monetary Fund and
strict rules for bank capital, had so far been aimed at blunting
the impact of high inflows, he said.
"Such policies can hardly be sufficient; hence authorities
should remain vigilant," Sanchez said, according to slides
prepared for the speech.
Markets have speculated that Mexico might start auctioning
dollars in a bid to counter sharp moves in the peso, a mechanism
it has used before during periods of peso volatility.
Mexico's economy is closely linked to that of the United
States and has been going through a soft patch in the first
months of 2013, prompting the government to cut growth estimates
to 3.1 percent.
But Sanchez said softening economic activity and rising
inflation were expected to be transitory, and leading indicators
such as the Purchasing Managers Index suggested economic
performance may improve in the near future.
Inflation, which had been on the rise this year, cooled more
than expected in early June, backing central bank forecasts for
tamer prices in the second half of the year.