Friday, January 6, 2017

Based Bank plans to support Peso: unrest because of rising gasoline prices in Mexico – FAZ – Frankfurter Allgemeine Zeitung

In Mexico exacerbated the domestic political situation as a result of rising prices. In the case of violent protests, the press came, according to reports, a police officer us life. More than 600 people were detained. There is talk of the sacking of 300 shops, the blockage of numerous roads as well as the occupation of ports and airports. The cause of the protests, especially higher fuel prices. Thus, the price for gasoline has risen since the beginning of the year to around 20 percent, while the price for Diesel increased by around 15 percent. So far, the policy does not respond to the demand for a withdrawal of the petrol prices. Presi dent Enrique Peña Nieto said the higher prices were to stabilise the economy.

Gerald Braunberger author: Gerald Braunberger, an editor in the business, responsible for the financial market.

In the financial markets, a striking weakness of the peso is a visible expression of the economic difficulties of the country. The threats of the future American President Donald Trump counter in Mexico manufacturing auto manufacturers contribute to the confusion. In the past few days, the rate of the peso fell against the Dollar on several occasions to historical lows. On Thursday morning, the Mexican Central Bank had been trying with foreign exchange interventions almost $ 2.4 billion to slow the devaluation of their currency. It is the first intervention by the Bank of Mexico since February, 2016.

infographic / Mexican Peso per Dollar

A initial-rate recovery was thwarted by a Tweet Donald trump’s counterattack. In his message on the short message service Twitter, Trump criticized the Japanese car manufacturer Toyota for its future business plans in Mexico. In the foreign exchange market was laughing noted, a letter in a 140 characters comprehensive Tweet Trumps, in terms of Intervention by the Bank of Mexico, with a value of approximately $ 17 million.

The Bank of Mexico was of this failure is not discouraged, and intervened on Friday for a second Time, in order to strengthen their currency. This Time it succeeded, the downward trend of the peso, at least temporarily, to reverse. In foreign exchange trading banks, however, are not convinced that the Central Bank purchases alone Support a sustained appreciation of its currency can enforce. Because purchases in exchange for the Peso, the Central Bank’s currency reserves must not sell, which are infinite. The currency reserves amount to a total of 177 billion dollars; add to that a line of credit with the International monetary Fund (IMF), it would be $ 260 billion. However, Mexico is not likely to be ready, the entire currency reserves to support exchange Rates. According to estimates by the French Bank BNP Paribas, the “firepower” of Mexico is expected in the foreign exchange market of around 40 billion dollars.

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to accept The weakness of the peso brings additional risk of inflation for a country, whose population seems not ready to significantly higher prices. According to the estimates of Economists, the inflation rate this year could reach around 5 percent. Market participants therefore expect an increase in the key rate in the coming weeks. A survey by the American Bank Citi, such a step could be decided in February.

After several interest rate increases in the past year, the Central Bank hesitates in the Moment, because higher interest rates may pose a risk to the economy. After an economic growth of 2.4 per cent in 2016, experts expect this year, with growth of 1.6 percent. At the end of the Central Bank, nothing will remain, than to increase its key interest rate, analysts from the Commerzbank: “Because you are not going to raise interest rates, it would be the country of Turkey. The market would punish the Peso and that would be at the end of the worse of the two Evils for Mexico."


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