Mexican peso still has room to strengthen: Finance Minister

WASHINGTON (BestGrowthStock) – Mexico’s peso still has room to appreciate and capital controls elsewhere have not been shown to be effective in stemming money flows, Finance Minister Ernesto Cordero said on Sunday.

In a sustained rally of emerging market currencies over the past year countries such as Colombia and Brazil have imposed capital controls to limit inflows of foreign funds, but Mexico has resisted such moves.

“Even though the exchange rate has appreciated in the last few weeks, in the long term the rate still shows undervalued levels,” Cordero said on the sidelines of the International Monetary Fund spring meetings.

“There is no real evidence that these types of controls to capital flows have had the expected results by the economies that have implemented them. Even with capital controls their currencies have continued the process of appreciation. These are measures that have to be taken with a lot of caution.”

The peso strengthened 6.0 percent in the first quarter to trade at its strongest in almost 1-1/2 years, thanks to a rebound in demand for Mexican exports from the country’s top trading partner the United States.

Mexico’s central bank has been buying U.S. dollars since March to build a war chest of reserves ahead of any possible volatility in global markets once the United States begins to raise interest rates. The program has also poured pesos into the market.

“We would have to see the results that these measures have had in other countries, but for the moment we consider that the appreciation of the nominal exchange rate of the last few weeks does not compensate for the severe depreciation that the exchange rate had at the beginning of the crisis,” Cordero said.

Cordero also said he thought there was no problem with inflation in Mexico.

Data last week showed Mexican consumer prices unexpectedly fell in the first half of April, taking pressure off the central bank to raise interest rates.

(Editing by Patrick Graham)

Mexican peso still has room to strengthen: Finance Minister