Mexico’s peso rose the most in almost four months and bonds dropped after policy makers left the target lending rate unchanged at a record low 4.5 percent for a 26th straight time.
The currency extended its 2012 gain against the dollar to 7.5 percent, the best performance among the 16 most-traded counterparts tracked by Bloomberg. Local-currency bonds slumped as traders who had bet that the central bank would lower borrowing costs were disappointed. Stocks rose after earlier falling on the rate decision.
The peso appreciated 1.6 percent to 12.9678 per U.S. dollar at 4 p.m. in Mexico City, the biggest daily gain since Jan. 3. The peso gained 1 percent this week.
“The market started to take out the implicit cuts it had priced in,” Alejandro Padilla, a debt strategist at Grupo Financiero Banorte-Ixe, said in a telephone interview from Mexico City. Stocks fell initially because “you’re not getting greater monetary policy stimulus,” he said.
Mexico’s peso had tumbled 3.8 percent in the four-week period leading up to today’s decision, the worst performance among 16 major currencies tracked by Bloomberg.
“Currency above 13 is a factor” in the rate decision, said Bret Rosen, a Latin America strategist at Standard Chartered Bank in New York, who had forecast policy makers would remain on hold. “With the backdrop of a weaker foreign-exchange rate, they might have felt a little less comfortable about easing monetary policy.”
Yields on fixed-rate bonds due in December 2013 tumbled 36 basis points, or 0.36 percentage point, in the four weeks through yesterday on speculation policy makers would cut the target lending rate. The yield increased 14 basis points today to 4.58 percent, according to data compiled by Bloomberg. It was the debt’s biggest one day slump since March 2, 2009.
The benchmark IPC index of 35 Mexican stocks slipped as much as 0.7 percent following the rate decision before rising 0.3 percent to 39,324.14 at close.
Rate-futures before the decision indicated central bank Governor Agustin Carstens would trim rates for the first time since July 2009.
Since that time, Brazil has raised or lowered its benchmark rate 15 times and the Federal Reserve has carried out two rounds of debt purchases known as quantitative easing, pumping cash into the U.S. economy.
Mexico’s annual inflation slowed to 3.73 percent in March from 3.87 percent in the previous month and 4.05 percent in January, the national statistics institute reported April 9. The target range for inflation is 3 percent, plus or minus one percentage point.
“The balance of risks to inflation has remained similar to what was reported in the last monetary policy decision,” the central bank said in its statement accompanying the decision. There is “an improvement in the balance of risks for economic growth,” the bank said.
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