Strong weight, what’s behind it?: Banxico

At a time of notable appreciation of the peso against the dollar, it is very interesting to know how the Ministry of Finance and the Bank of Mexico observe and explain this trend.

The agency headed by Rogelio Ramírez de la O proudly commented on Twitter.

And the governor of Banxico, Victoria Rodríguez Ceja, explained in 6 points the factors that are determining the appreciation of the peso against the dollar.

The strengthening of the peso is such that yesterday the Ministry of Finance, headed by Rogelio Ramírez de la O., dared to launch a tweet, in which he highlighted the positive behavior of the peso.

On its Twitter account, the agency commented: “The peso reached its best level against the dollar for 33 months, being one of the few currencies that have appreciated in the year.”

It is already customary to listen to President Andrés Manuel López Obrador, “bragging” about the “strong peso”.

And this is the first time that the Ministry of Finance, during the current six-year term, underlines the level of the exchange rate of the peso against the dollar.

For their part, central bankers have always been very careful, frugal and even evasive when commenting on the peso’s price against the US currency.

Traditionally, both the Treasury and Banxico reserve comments and limit themselves to saying that the peso operates in a free floating market.

For this reason, the statements made yesterday by the governor of the central bank, Victoria Rodríguez Ceja, attract attention and must be observed with interest. Basically, she identified six factors that explain the “strong peso”.

1.- The inflow of capital registered in the fixed income market during November.

2.- External accounts are at ‘sustainable’ levels.

3.- The financial system is ‘very solid’, thanks to adequate financial regulation.

4.- Mexico has long-term public debt that is issued mainly in pesos, “in such a way that we do not have a significant risk issue.”

5.- The level of international reserves is adequate.

6.- The country has ‘solid’ macroeconomic fundamentals; a responsible fiscal policy and a forceful monetary policy applied by the Bank of Mexico that seeks to ensure the convergence of inflation towards its 3% target.

So far what the Treasury observes and what Banxico explains.

It is worth noting that the appreciation of the peso is indeed notable. The peso is located in the number 3 position of the most appreciated currencies among the main dollar crosses.

It must be said that what most analysts agree on is that macroeconomic stability and sound public finances, as well as fiscal responsibility and the credibility and confidence generated by Banco de México, are a fundamental part of explaining the appreciation Of weight.

A central element that counts in favor of the appreciation of the peso is the free floating scheme in which our currency operates.

Since it was adopted in the 1990s, it has allowed the exchange market to deepen and has even become a kind of cushion against external shocks.

Undoubtedly, the differential of 600 base points that Banxico maintains with respect to the United States Federal Reserve in its interest rates counts a lot.

The international context in which there has been a weakening of the dollar has also counted and is counting in an important way.

In any case, it is best to take the notable appreciation of the peso with caution, because there is a lot of volatility and uncertainty globally and the trend could change at any time.

Let’s see!

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