Official responds to concerns about peso, Brexit, growth rate

The Financial Times reports Mexico’s central bank governor Agustín Carstens expects the country can maintain its 2.4-2.5 per cent growth rate in 2016, in spite of economic headwinds and Brexit-related fallout.

Matching last year’s growth of 2.5 per cent will not be easy for Mexico, battling a battered peso and inflationary pressures that last week prompted a surprise half-point rate rise.

The Bank of Mexico has regularly cut economic forecasts over the past couple of years amid collapsing oil prices, slow structural reforms and what the bank calls an “unfriendly world economy”.

Furthermore, Mr Carstens expects “enhanced volatility” for the rest of 2016 as the US election reaches its peak and the dust settles from Britain’s vote to quit the EU.

Bank of Mexico head Agustín Carstens. (PHOTO: gcmx.mx)

Still, speaking at his office, he told the FT: “If subsequent [Brexit] developments are handled in an orderly, constructive fashion — that’s an important if — I think it [the impact] should be manageable.”

The Mexican peso has been in the line of fire. As the most liquid emerging market currency, it represents a convenient hedge and briefly touched an all-time low of just under 19.52 to the dollar on the UK referendum result. It rallied on the rate cut, but has since weakened again and is now trading at just above 18.6.

The US elections could pose even bigger risks if Republican Donald Trump, who wants a border wall and an end to US companies relocating to lower-cost Mexico, wins in November. “We have to be very cold-headed,” Mr Carstens said, noting “real gains of trade” in the bilateral US-Mexican relationship “that should be the leading consideration”.

For now, volatility looks set to continue — which can curb investors’ appetite to put money into Mexico, Mr Carstens said.

For complete Financial Times article, click here.

Source: ft.com