![]() First, the new cycle of interest rate hikes by the Federal Reserve in the United States will take a bit of the shine off the peso. “I do not expect the peso to appreciate beyond what it is now for two reasons. “My model suggests that the Mexican peso is overvalued by 13% relative to other emerging market currencies,” said Rostagno by phone from São Paulo. He argues that the current price does not reflect the country’s weak economic outlook. Luciano Rostagno, a market strategist at Mizuho bank in Brazil, also believes that the peso will reach 21 this year. BofA expects a slight depreciation to 21 pesos per dollar by the end of this year and then to 22 pesos per dollar in 2023. Navarrete maintains that the peso will remain close to its current level, below 20 pesos per dollar, for the rest of the year. When it comes to betting on the peso’s future, Wall Street is more divided. Mexico’s interest rate went from 4% in March of last year to its current rate of 7%. Since the middle of last year, the Bank of Mexico has consistently increased its reference interest rate to deal with inflation, which stems from the pandemic and economic stimuli in developed countries. Monetary policy has also boosted the currency. It is also likely that, because the Mexican government didn’t support such a policy during the pandemic, the economy fell more than it should have, but that is not totally clear” Rodolfo Navarrete, the director of investment analysis and strategy at the brokerage firm Vector Casa de Bolsa, agrees with this analysis: “Many economists were demanding that the government increase spending on Covid, which the government did not do it is likely that the move worked out well. It has also kept rating agencies at bay,” the analysts added. “Investors in fixed-income markets like a tight fiscal stance. “A tight primary balance has helped Mexico keep public sector debt below 50% of GDP,” BofA wrote. Unlike countries that implemented extensive welfare programs, Mexico’s president resisted the pressure and refused to increase spending to contain debt. However, analysts agree that a decision by López Obrador’s government is one factor that is contributing to the strengthening of the Mexican peso today. In addition, the initiatives that President López Obrador has sent to Congress to limit private investment have created uncertainty, the economists added. ![]() The report emphasized that, in the second half of 2021, Mexico barely escaped a technical recession, and the economy is now stagnant. “The result is surprising to the extent that Mexico’s growth has been weak and political uncertainty remains high,” wrote economists Carlos Capistrán, Christian González, and Claudio Irigoyen. This week, economists from the Bank of America (BofA) investment bank published a report announcing that the “super-peso”-which they estimate has appreciated against the dollar by 17.5% since April 2020-will remain strong. In this context, experts and market traders disagree about the currency’s future. However, the appreciation of Mexico’s currency stands out among other emerging market currencies. Mexico has experienced disappointing growth since 2019, has not fully recovered the economic activity it lost during the pandemic, and its future prospects are not particularly bright. To Wall Street’s surprise, the Mexican peso is performing better than any other emerging economy’s currency. ![]()
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