Mexico delays prop-up measures as peso slides to record low after Trump victory
Mexico’s peso remained under pressure on Wednesday morning Nov. 9, weakening past 20 pesos per dollar after Donald Trump’s surprise U.S. presidential election win, but local authorities held off announcing any immediate mitigating economic measures, Reuters reported.
After plunging to its weakest-ever levels overnight as Trump forged toward victory, in its biggest fall since the 1994 Tequila Crisis, the peso then recovered slightly. But it was down 10.35 percent at 20.2165 per dollar in early morning trade.
Trump’s threats to rip up a free trade agreement with Mexico and to tax money sent home by migrants to pay for building a wall on the southern U.S. border have made the peso particularly vulnerable to events in the race for the White House.
Several economists had expected a snap interest rate hike, but central bank Governor Agustin Carstens said on Wednesday morning the bank would take any necessary measures pending market conditions and hold a monetary policy meeting next week, but did not announce any immediate steps to support the currency.
President Enrique Pena Nieto said on Twitter he was ready to work with Trump, calling the neighboring countries friends who “should continue to work together for the competitiveness and development of North America”.
Marco Oviedo, an economist at Barclays in Mexico City, said the market was disappointed by the lack of an emergency rate hike this time after Mexico has already raised its benchmark interest rate three times this year to support the peso.
“They have been hiking whenever there is extreme volatility and this was another situation like that, and they decide not to do it,” Oviedo said.
Five economists had told Reuters they expected the central bank to raise its benchmark interest rate by an impromptu 75 to 150 basis points on Wednesday.
Carstens last week said Mexico was prepared for an “adverse” result in the U.S. election, which he has said could hit the country like a “hurricane.”
The central bank last hiked its key rate in September by 50 basis points, lifting it to 4.75 percent to anchor inflation expectations following a sharp depreciation of the peso.
“Very hard times are coming to Mexico,” said analyst Gabriela Siller of Mexican bank BASE.
Mexico has more than $175 billion in foreign reserves, and Carstens said last month he would consider using a $90 billion International Monetary Fund flexible credit line “in the event of an external shock.”
Trump’s win caught the market off guard. The peso rallied nearly 1.4 percent on Tuesday before official election results began to be released as the market bet Clinton would win.