Mexico to auction dollars to prop up peso
December 1st, 2011 - 12:24 pm ICT by IANSMexico City, Dec 1 (IANS/EFE) Mexico’s currency exchange commission announced forceful action to bolster the peso, saying the central bank will auction $400 million of its reserves on days the peso is 2 percent lower than the previous session.
The commission, made up of officials from the finance ministry and central bank, said in a statement that that move, as well as another measure to halt monthly sales of dollar put options, were “preventative” and aimed at providing “liquidity to the foreign exchange market when necessary”.
The peso has experienced sharp volatility in recent months, falling from 11.74 to the dollar Aug 1 to 14.26 pesos to the greenback last Friday.
The currency depreciation has been triggered by uncertainty surrounding the US business cycle and lack of solutions to debt woes in some European countries, which in turn has caused the perception of risk in emerging economies to rise, experts say.
Effective immediately, the central bank will begin auctioning $400 million of its reserves every day the peso falls by more than 2 percent, the statement said, adding that Mexican authorities have used that mechanism successfully in the past.
The commission also said it will “temporarily suspend” until further notice the monthly sale of dollar put options, which the central bank had been using to boost dollar reserves.
Analysts expect an exchange rate of 12.96 pesos to the dollar by year’s end and of 12.82 pesos to the greenback by the close of 2012, according to the most recent survey conducted by the central bank.
The peso closed stronger relative to the dollar for the second straight session Wednesday, climbing to just under 13.64 to the greenback.
–IANS/EFE
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Tags: business cycle, currency depreciation, currency exchange, debt woes, efe, emerging economies, european countries, exchange commission, exchange rate, finance ministry, forceful action, foreign exchange market, further notice, greenback, last friday, liquidity, mexican authorities, mexico city, perception, volatility