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EMERGING MARKETS-Mexico peso rallies despite rate cut
March 8, 2013 / 8:21 PM / 5 years ago

EMERGING MARKETS-Mexico peso rallies despite rate cut

* Mexico cenbank cuts rates by 50 bps, says not starting
easing cycle
    * Bets increase that Brazil will hike rates after inflation
    * Mexico peso rallies 1.08 pct, Brazil real gains 0.62 pct

    By Walter Brandimarte
    RIO DE JANEIRO, March 8 (Reuters) - Mexico's peso rallied on
Friday even after policymakers cut interest rates for the first
time in nearly four years, while the Brazilian real gained on
bets that higher-than-forecast inflation would force the central
bank to tighten policy.
    Lower domestic interest rates usually decreases appetite for
local assets. But in the case of Mexico, investors focused on
improving prospects for the economy following the central bank's
decision to make an one-off cut of 50 basis points in benchmark
borrowing costs.
    In a decision unforeseen by most economists, the Banco de
Mexico brought its base interest rate to a record low of 4.0
percent, a move that analysts expect to bolster Latin America's
second-largest economy. 
    The bank added that the move was not the beginning of a
monetary easing cycle, which limited the potential depreciation
of the peso, noted Enrique Alvarez, head of Latin America
strategy at IDEAglobal in New York.
    "The market will see that as a signal that they're trying to
get ahead of the curve in terms of (supporting) growth," said
Alvarez. "I don't think there will be a lot of depreciation in
the peso notwithstanding the rate cut."
    The Mexican peso added to gains after the central
bank decision and last traded at 12.6279 per dollar, 1.08
percent stronger than Thursday's close. It strengthened briefly
to levels not seen since Feb. 5, a more than 1-month high.
    The peso's rise also followed data showing U.S. employers
added more jobs than expected in February, pushing the jobless
rate to a four-year low. 
    Roughly 80 percent of Mexican goods are sold in the United
States, and Mexico's economic health is deeply tied to its
northern neighbor. 
    The real  rose 0.62 percent to 1.9480 per
dollar after reaching its strongest intraday level since May,
    Some analysts fear the central bank could intervene to curb
currency gains after the real crossed the 1.95-per-dollar mark
that many analysts considered the boundary of an informal
trading range imposed by the central bank.
    Gains in Brazil's currency followed data showing consumer
prices jumped more than expected in February despite a
government-sponsored cut in electricity rates. The data added to
prospects of higher interest rates in the next few months.
    Banks such as JPMorgan recommended investors stay long the
Brazilian currency, betting that further gains would be spurred
by a hike in the base Selic rate and by inflows coming from
external funding sources for Brazil's medium-term infrastructure
    Other Latin American currencies were little changed. 
    Latin American FX prices at 19:50 GMT:    
 Currencies                    daily   YTD %
                                   %  change
 Brazil real          1.9480    0.62    4.72
 Mexico peso         12.6279    1.08    1.87
 Chile peso          471.400    0.08    1.55
 Colombia peso       1802.20    0.02   -2.01
 Peru sol             2.6010    0.00   -1.92
 Argentina peso       5.0650    0.00   -3.01

 Argentina peso       7.8100    0.13  -13.19

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