Mexican Peso Posts Fourth Weekly Advance as Inflows Increase

By Ben Bain

Jan. 27 (Bloomberg) -- Mexico’s peso gained for a fourth consecutive week as the outlook for a prolonged period of low interest rates in the U.S. lured foreign investors to the Latin American country’s higher-yielding assets.

The peso rose 0.6 percent to 12.9169 per U.S. dollar at the close in Mexico City, from 12.9913 yesterday. It strengthened 2 percent this week, the best performance among the six most- traded Latin American currencies tracked by Bloomberg.

Assets from Mexico, which last week kept its overnight rate at 4.5 percent, are rallying after the Federal Reserve pledged to maintain near-zero interest rates through 2014. Foreigners’ held 43.6 percent of local-currency fixed-rate bonds, known as Mbonos, on Jan. 18, up from 31.3 percent a year ago, according to the most recent central bank data.

The peso’s advance is being fueled in part by a “liquidity that’s being caused by foreign investors,” said Rafael Camarena, an economist at Banco Santander SA in Mexico City. Recent economic data from Mexico is also adding to the peso’s gains, he said.

The recent peso appreciation will help keep inflation within a range of 3 percent to 4 percent this year, Mexico central bank Governor Agustin Carstens told reporters today at the World Economic Forum in Davos, Switzerland.

“Inflation will be kept under control,” Carstens said. “The most recent appreciation of the peso will also help the inflationary process.”

Inflation Target

Policy makers target an annual inflation rate of 3 percent, plus or minus 1 percentage point.

Latin America’s second-largest economy grew a more-than- forecast 3.75 percent in November from a year earlier, according to the national statistics agency’s proxy for gross domestic product released on Jan. 24. Mexico reported a preliminary trade surplus in December on Jan. 25, surprising economists who had forecast a deficit.

The yield on Mexico’s peso-denominated bonds due in 2024 rose three basis points, or 0.03 percentage point, to 6.23 percent, according to data compiled by Bloomberg. The price of the securities fell 0.29 centavo to 133.29 centavos per peso. The yield declined six basis points this week.

--With assistance from Nacha Cattan in Mexico City and Jana Randow in Davos, Switzerland. Editors: Richard Richtmyer, Glenn J. Kalinoski