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Mexico Peso Trades at Almost One-Week Low on Banxico GDP Outlook

By Patricia Laya and Ben Bain
May 21, 2014 5:36 PM EDT

Mexico’s peso traded at an almost one-week low after the central bank reduced its 2014 economic growth forecast for a second time.

The currency dropped 0.1 percent to 12.9272 per U.S. dollar at 4 p.m. in Mexico City, the weakest closing level since May 15. It was the only major Latin American currency to fall today.

The central bank said today in its quarterly inflation report that gross domestic product will rise 2.3 percent to 3.3 percent this year, down from the prior forecast of 3 percent to 4 percent. In the U.S., the Federal Reserve said in minutes of its April meeting published today that continued stimulus to push unemployment lower doesn’t risk sparking an undesirable jump in the inflation rate.

“Banxico’s forecast surprised because the revision was more negative than expected,” Alexis Milo, the chief Mexico economist at Deutsche Bank AG in Mexico City, said by e-mail. “Banxico will stick to its current monetary policy and will go higher in tandem with the Fed.”

Mexico’s policy makers have left the target lending rate at a record low 3.5 percent for almost seven months, saying in its most recent decision that the economy probably grew less than expected in the first quarter.

In the U.S., the Fed has reduced monthly debt purchases that have supported demand for emerging-market assets by $10 billion at each of its past four meetings.

Yields on peso bonds due in 2024 fell one basis point, or 0.01 percentage point, to 5.91 percent today, according to data compiled by Bloomberg. The price climbed 0.13 centavo to 132.11 centavos per peso.

To contact the reporters on this story: Patricia Laya in Mexico City at playa2@bloomberg.net; Ben Bain in Mexico City at bbain2@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net Dennis Fitzgerald, Bradley Keoun

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