Strengthening the peso helps control inflation and attract investors: Gabriela Siller

The strengthening of the Mexican peso against the dollar by 3.21% in the first quarter of the year compared to the previous three months will help to control inflation, which is currently at levels not seen in 20 years, and also attract investors.

“The Mexican peso appreciated significantly in 2022. In fact, in the first quarter of the year it closed with an appreciation against the dollar of 3.21% or 65.9 cents, trading around 19.87 pesos per dollar,” said the director of economic analysis of Banco Base, Gabriela Siller, in an interview with Efe.

Regarding the euro, the appreciation was 5.81% quarter-on-quarter in the first three months of the year with a price of 21.99 units per euro.

Weight appreciation in this first quarter was the highest since the fourth quarter of 2020.

The Mexican peso, which was around 18.5 points per dollar before the pandemic, suffered its worst moment in March 2020 when it exceeded 25 units per greenback.

The Mexican currency closed 2021 with an annual depreciation of 3.01%, trading at 20.51 units per dollar on the last day of the year.

According to the expert, the Mexican peso is now in fifth place both in appreciation against the dollar and the euro. Only behind the Brazilian real, the Peruvian sol, the Chilean peso and the Colombian peso.

The Mexican peso has a “free floating” exchange rate regime, so it depends on the interaction of supply and demand, and Mexico “has entered a lot of currencies due to exports and remittances,” he explained.

Mexican exports are expected to grow between 7% and 10% this year, driven by US growth, while remittances could show growth of between 10% and 13%, he said.

The Mexican peso is expected to continue to appreciate, so it could reach a level of 19.60 pesos to the dollar.

As Siller explained, the appreciation of the peso is a “big advantage” because now it does not “put pressure” on inflation - above 7% for months, its highest level in 20 years - in terms of imported products.

This Thursday, the National Institute of Statistics and Geography (Inegi) reported that in March inflation stood at 7.45% year-on-year, its highest level since 2001.

However, it is similar to 7.36% in December 2021 and lower than that of the United States (7.9%) or Spain (9.8%).

In addition, the armed conflict in Ukraine has led to increases in commodity prices and, added the analyst, in recent days this has benefited the Mexican peso because it is related to the price of oil.

“As the price of oil rises, the Mexican peso appreciates,” he explained.

In addition, the appreciation of the peso attracts more investors to the country, a factor that is added to the increases in the interest rate so far this year, which now stands at 6.50%.

“Capitals are also coming in, those who left Russia are looking for safer places,” he added.

Although the appreciation is in principle beneficial to Mexico, the analyst warned that there is a lot of “volatility” and the “possibility” that the Mexican currency will “depreciate” again.

This “translates into uncertainty” because “what benefits exports and imports is a stable exchange rate,” he added.

Nor are “new depreciations” ruled out in the context of the pandemic, with the war in Ukraine and because of “local issues”, such as the electricity reform initiative could be.

“From the economic point of view of growth, what benefits most is a stable weight because better long-term planning can be made,” said the expert.

Banco Base estimates that the Mexican economy will grow this year between 1.5% and 2% in a “central scenario”. In an optimistic scenario, the economy would increase to 2.5% and in a pessimistic one to 0.5%.

The Mexican economy grew by 4.8% in 2021 and contracted by 8.2% in 2020, its worst collapse since the Great Depression of 1932.

According to the Mexican government, the country's economy will grow by 3.4% in 2022.

EFE

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