Mexico’s peso led a sell-off in emerging market currencies on Wednesday, falling to MXN20 to the dollar after Donald Trump’s victory in the US presidential election, but Mexican officials say they have no immediate plans to take steps to prop up the currency.
The peso suffered its sharpest fall since the 1994 Tequila Crisis, touching MXN20.78 in early trading, but it recovered slightly to around MXN19.75 by midday.
Mexico’s Finance Minister José Meade and Central Bank Gov. Agustín Carstens held a press conference to assure investors and ordinary Mexicans that the country was well placed to cope with the market volatility but did not announce any new measures to shore up the currency.
Market watchers and economists had speculated Mexico would respond with an immediate interest rate hike after Trump’s victory. But Meade emphasized the size of the country’s foreign exchange reserves, which stand at around $175bn, and stressed that Mexico does not need to tap international credit markets this year or next.
“We will take the necessary measures” to help bolster the economy, Meade said without offering details. Mexico is in “a position of strength to face this new environment,” he added.
Carstens said the central bank will hold a monetary policy meeting next week and continue to monitor the financial markets.
One of the world’s hardest hit currencies, the peso has seen volatile trading in the run-up to the US election, often weakening sharply when polls showed Trump, who has vowed to renegotiate a free trade agreement with Mexico, gaining in public opinion surveys.
Some economists believe Mexico will ultimately have to raise its benchmark interest rate in the days ahead. The Bank of Mexico, or Banxico, raised interest rates three times this year after the peso hit previous all time lows.
“For now, we’ve penciled in a 50bp hike in interest rates to 5.25% next week,” Capital Economics said in a research note. “Larger rate hikes now seem unlikely unless the peso comes under renewed pressure.”
Last week, Carstens said Mexico was preparing a contingency plan if Trump was elected, warning that a Trump victory would hit Mexico like a “hurricane.”
Uncertainty persisted on Wednesday over just what, if any, policy changes toward Mexico Trump might seek when he takes office.
“While policy direction from the Trump administration is not yet clear, any changes that materially disrupt trade or financial flows would be a credit negative for Mexico,” said Jaime Reusche, senior sovereign analyst at Moody’s. “Exports to the US represent over 20% of Mexico’s GDP. The country would also be vulnerable to a slowdown in foreign direct investment from the US. The [Mexican] government’s efforts to consolidate its budget could be compromised should these risks materialize,” Reusche said.