Central Bank acts to strengthen peso

Banco de Mexico made two announcements on the 21st that gave the peso a huge boost. Bank chief Agustin Carstens said that he will stay at the bank until November, instead of leaving in July for the BIS.  Secondly, the bank announced a $20 billion exchange cover auction program starting in March that will enable banks to hedge FX risk up to 12 months.  Not everyone was reassured by the new program.  Financial columnist Samuel Garcia wrote that the government could use the program to keep the peso artificially strong, if more negative news were to occur:  “The fact is that the government has decided to meddle in the FX market, as it did in 1982 and 1994, with the consequences that we all know.”  The peso strengthened 3.6% during the week, and closed below Ps. 20 per dollar for the first time since just after the U.S. election.

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