May 23, 2018 / 6:58 PM / 5 months ago

Reuters poll: Mexico central bank could act if peso weakens - analysts

MEXICO CITY (Reuters) - Mexico’s central bank could raise interest rates or step up currency intervention if the peso continues to depreciate, according to a Reuters survey of analysts conducted in the last week.

Bundles of Mexican Peso banknotes are pictured at a currency exchange shop in Ciudad Juarez, Mexico January 15, 2018. REUTERS/Jose Luis Gonzalez

Of 19 experts consulted, 17 thought the central bank would take some kind of action if the peso continued to weaken.

Seven of them expected the bank would raise its benchmark interest rate by 25 basis points while also increasing the amount of peso derivatives they auction.

Six analysts said the bank would just raise rates, while four thought they would only increase auctions of peso non-deliverable forwards (NDFs).

Mexico’s central bank held its benchmark interest rate steady at 7.50 percent on Thursday, and policymakers warned that uncertainty surrounding trade talks with the United States and Canada as well as domestic elections could negatively affect the peso.

The bank, which says it supports a freely floating peso and shies away from direct intervention in currency markets, launched a $20 billion hedge program in February 2017 after the election of U.S. President Donald Trump sparked a deep slump in the currency that threatened to push inflation higher.

So far, the bank has only auctioned $5.5 billion of those instruments, leaving plenty of room to step up the pace, analysts said.

Some of the analysts said the peso would have to trade consistently above 20 to the dollar in order to risk higher inflation through more expensive imports. Mexico’s central bank has said when the peso has plummeted in the past that it does not protect a certain level.

Reporting by Sheky Espejo; editing by Jonathan Oatis

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