Published On: Thu, Mar 12th, 2015

Bank of Mexico Pumping US Dollars Into The Market: Will That Be Enough?

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Since yesterday, Bank of Mexico Exchange Commission decided to auction $ 52 million US dollars every day from now until June 8th. This is the injection of 3 thousand 120 million dollars into the exchange market, regardless of how the exchange rate behaves. In addition, they could add up to $200 million US dollars per day in case of an increase of more than 1.5 percent.

This announcement, made the US dollar drop from $15.62 to $15.44 at the close of the day.

Will this injection of US dollars into the market help against the dollar sprint? –No-

This injection of US dollars will not curb a rise that is produced by an international trend that points to the strength of the dollar. It would be like imagining that a small fence is able to stop an avalanche. It would not be possible.

Mexican monetary authorities had to do something and that is why the injection of the 52 million was announced, however, Finance Minister himself has stated in the past two days: “It is a phenomenon that transcends borders and is hitting many currencies”.

Does this mean that the dollar will keep increasing its value? Not necessarily. What we have seen is a speculative phenomenon; it would be possible to cause to a drop in the currency price if a rise in interest rates is announced, creating a downward movement. In fact, the most serious uptrend occurred from late February until the day before yesterday.

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However any indicators or news in the opposite direction could create conjectures that this adjustment if it doesn’t come early enough will trigger the value of the dollar everywhere, including México, which leaves us in the vagaries of speculation.

We must not forget that we are facing an unprecedented situation in history. There had never been an infusion of cash as occurred in the United States, which it held for many months interest rates near zero levels. And therefore we do not know for sure what will happen when the upward cycle starts.

Given these uncertainties, it is better to assume that for several months ahead of us we will have an expensive US dollar and therefore consider the correct strategies because it does have a strong impact in the Mexican Economy but at the same time, there are different sectors of the economy that will win with this picture.

Bank of Mexico Exchange Commission should analyze very carefully what specific measures are to be taken since it could be a grave mistake that in order to stop the depreciation and prevent inflationary contagion, to raise interest rates before the economy recovers its balance .

José Urioste Palomeque
2b Marketing
www.2b.com.mx

Mexico Travel Care

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