Banxico could intervene “with caution” if peso volatility becomes “extreme”

Mexico could intervene to restore order if the market volatility currency becomes “extreme”said the governor of the central bank, Victoria Rodríguez.

Rodriguez He made these statements on Wednesday, in a month in which the peso has led global losses, although he stopped short of committing to intervene.

The head of Banxico said that possible intervention mechanisms include a US$30 billion exchange hedging program that could be implemented by the Exchange Commission, led by a group of senior finance officials, including herself. But she reiterated that monetary flexibility remains one of the pillars of Mexico’s economic system and said the bank would not target any particular exchange rate.

“The Bank of Mexico will be very attentive to the development of our markets and to the possibility that they show atypical behavior or extreme volatility”said Rodriguez, in a presentation of the bank’s periodic financial stability report. “In the event of any eventuality that warrants it, I could take the necessary measures, of course, to reestablish their orderly behavior.”

Any such intervention could be carried out by the bank alone or in coordination with other entities such as the Foreign Exchange Commission, he said.

Weight volatility

Rodriguez He said the bank should evaluate “cautiously” the inflationary impact of peso volatility before the next monetary policy decision on June 27. Monetary policymakers need time to estimate these effects, which may not be evident in the short term, Rodríguez added.

Among the factors that have contributed to the peso’s recent movements are the war in the Middle East, the delay in the rate cut by the Federal Reserve and “idiosyncratic factors“, said Rodriguez without explicitly mentioning the recent elections in Mexico.

The comments had little immediate impact on the peso, which has lost more than 10% since the June elections. The ruling Morena party and its allies won more seats in Congress than expected, raising concerns that lawmakers could pass a bill to replace the Supreme Court with elected judges, thus weakening checks on the ruling party’s power. .

Operation to reduce foreign debt payments

Mexico launched an operation to reduce debt maturities in 2025, the Undersecretary of the Treasury, Gabriel Yorio, wrote in an X publication.

The Government also announced a debt refinancing that seeks to curb obligations in local currency maturing in 2025, he added.

“We will monitor the markets to continue with financial operations that benefit liquidity“Yorio wrote on the social network.

Mexico’s markets have been rocked by volatility since the June 2 vote gave more seats than expected to the ruling coalition. The peso has weakened more than 10% this month.