January 25, 2011 / 1:42 PM / 7 years ago

UPDATE 2-Mexico carefully watching peso's rise-finmin

* Mexico’s Cordero says paying attention to peso’s rise

* Sees no need for capital controls in Mexico

* Sees growth at 4-5 pct in 2011, around 5 pct in 2012 (Adds market reaction, background, changes dateline)

By Daniel Flynn and Michael O‘Boyle

PARIS/MEXICO CITY, Jan 25 (Reuters) - Mexico is paying great attention to the rising peso, Finance Minister Ernesto Cordero said on Tuesday, helping to fan market concern about the chance of increased official intervention.

Cordero said he did not think controls on capital inflows were appropriate for Mexico, which has so far refrained from the aggressive steps taken by other countries in Latin American to fend off rising levels of attention from foreign investors. [ID:nSGE69503F]

But market participants said authorities could increase the program of monthly dollar option sales, seen as a more market-friendly measure than capital controls.

Speaking to reporters during a visit to Paris, Cordero was asked about the strength of the peso MXN= MEX01, which has scaled to nearly 2-1/2-year highs in recent weeks.

“It is something which we are paying attention to very carefully at the moment,” he told a news conference, although he added that Mexico’s low inflation meant the peso was not rising against the dollar as fast as other regional currencies.

Mexico’s export sector was not especially sensitive to currency issues as it benefited from other competitive advantages, such as geographical location, a solid worker skill base and low transport and logistics costs, he said.

“It is not clear that establishing capital controls would be very effective in the medium term. In the case of Mexico, we do not think it would be very effective,” Cordero said.

The peso fell 0.5 percent against the dollar after the comments, which fueled talk among traders and analysts that Mexico’s central bank could increase the $600 million in dollar put options it sells every month to local banks -- although this was still seen as an outside chance.

“Businessmen are complaining the strong peso could affect competitiveness, and authorities could start buying more dollars to break the appreciation a bit,” said Antonio Magana, head of currency trading at Mexico City brokerage Interacciones.

The dollar purchase program, announced a year ago, gives banks the right to sell dollars to the central bank at a preferential peso rate when the Mexican currency is on a winning streak against the dollar.

The options allow the central bank to suck up extra dollars directly from banks and keep some dollar sales off the open market, which could help slow peso gains.

No meetings of the Currency Commission, which administers the program and has representatives from the finance ministry and central bank, are currently scheduled, and so far the central bank has not expressed concern about the peso’s level.

SOLID GROWTH SEEN

Cordero also said Mexico’s economy could expand by as much as 5 percent in 2011, compared to earlier forecasts of about 4 percent. Latin America’s second-largest economy was on track for growth of 4-5 percent this year, and “around 5 percent” in 2012, he said.

At the same time, he said, inflation is cooling, helping the peso to stabilize. Figures on Monday showed annual inflation eased to a lower-than-expected 3.96 percent in the first half of January. [ID:nN24178490]

“In Mexico, the inflationary process is trending downwards, and it is very probable that we will end the year in accordance with the Bank of Mexico’s forecast, which is around 3 percent,” Cordero said.

Turning to France’s proposal to the Group of 20 rich and emerging nations for a financial transactions tax, Cordero said Mexico -- which takes over the presidency of the group in November -- was in general not in favor of it.

“We do not consider it prudent or adequate for the reality of Mexico, a country where we are trying to increase financial penetration,” he said. (Additional reporting by Luis Menas Rojas and Sean Mattson, writing by Daniel Flynn and Krista Hughes; Editing by Padraic Cassidy)

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