Bloomberg News

Banxico’s Sanchez Says Effect of Peso Slump on CPI ’Unknown’

December 12, 2011

(Updates to add quote in fourth paragraph.)

Dec. 9 (Bloomberg) -- A weaker Mexican peso may translate into inflationary pressures and the potential impact of a considerable depreciation is “unknown,” said Bank of Mexico Deputy Governor Manuel Sanchez.

Sanchez added that the pass-through from exchange rate movements to consumer prices has fallen in recent years. His comments were published on the central bank’s website today.

While international financial turbulence has negatively impacted the Mexican peso-denominated bond market the effects on the national currency have been greater, Sanchez said.

“The relatively minor impact of the financial instability on Mexico’s yield curve seems to reflect the high proportion of long-term bonds within foreign holdings of peso-denominated government securities,” Sanchez said.

International investors held 40.5 percent of the fixed-rate peso bonds known as Mbonos on Nov. 30 compared with 29.7 percent a year earlier, according to the most recent data available from the central bank.

The peso gained 1 percent today to 13.5744 per U.S. dollar for an advance of 0.5 percent this week. The increase pared its decline in 2011 to 9.1 percent, the worst performance among Latin America’s six-most traded currencies.

The central bank official spoke today at the U.S.- Mexico Chamber of Commerce in Los Angeles, according to a transcript published on the bank’s website.

--Editor: Jose Enrique Arrioja

To contact the reporters on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net; Ben Bain in New York at bbain2@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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