Mexico Would Consider Measures to Curb Peso Gains

This article was first published in 2010 by Bloomberg News. 
 
By Jens Erik Gould and Carlos Manuel Rodriguez

     Nov. 10 (Bloomberg) -- Mexico would consider measures to curb gains in the peso if the U.S. Federal Reserve's stimulus plan accelerates capital flows into the country, central bank President Agustin Carstens said.

     Carstens, at the Bloomberg Economic Summit in Mexico City today, said policy makers will be ``very patient'' before taking any action. He said they would coordinate any currency measures with the finance ministry to avoid sending the ``wrong signal'' to investors.

     Right now the peso, whose 1.8 percent rally over the past month is the biggest in Latin America, is not overvalued, Carstens said. The peso's 7 percent rally this year is the second-best in the region after Colombia's peso.

     ``Mexico has to be careful for the medium and long-term consequences of any actions to deal with a stronger peso,'' Carstens said. He said capital controls like those adopted by Brazil are unlikely to be effective in the long-run.

     Bond yields have declined to ``extraordinarily'' low levels, he said. Policy makers are watching ``closely'' the decline in yields to see whether they are transitory or not.

     Carstens said Mexico would benefit if the Fed's decision to purchase $600 billion in Treasuries succeeds in boosting U.S. economic growth. Mexico sends 80 percent of its exports to the U.S.

     ``It's an understandable measure, and up to some point even desirable,'' he said.  ``If I were in Ben Bernanke's shoes I would do the same.''