Mexico: Foreign Exchange Commission states it will intervene to control exchange rate volatility
December 1, 2011
Volatility continues to dominate global financial markets amid repeated failures to contain the European debt crisis, which now threatens to spread over to its core members. On the last day of November, the Mexican peso traded at 13.67 per USD, which represents a 2.7% nominal appreciation over the 13.30 MXN per USD recorded at the end of October. Only a couple of days before, however, on 25 November, the currency had fallen to 14.27 MXN per USD, which represented its lowest level since March 2009. Against this backdrop, the Foreign Exchange Commission, formed by the Ministry of Finance and the Central Bank (Banxico), announced that, from 30 November onwards, it would temporarily suspend its foreign exchange options auctions aimed at accumulating foreign reserves and, on the contrary, sell USD 400 million if the peso depreciates more than 2% against the USD over the previous session. Banxico has been reluctant to intervene in the foreign exchange market and the current move does not aim to contain the peso's depreciation, which both the Bank and Consensus Forecast panellists anticipate to be temporary. Rather, the move aims to ensure the proper functioning of the foreign exchange market by providing additional liquidity and thus reducing volatility. Moreover, in contrast with developments in 2008, the Central Bank can now count on an ample margin of manoeuvre, with foreign exchange reserves sitting at a historic high of USD 139.6 billion.