UPDATE 3-Mexico shrugs off peso dip, downplays outflow risk

by on November 13, 2012 10:44 pm BST

Tue Nov 13, 2012 5:44pm EST

* Peso falls nearly 0.6 pct against US$ in Tuesday trade

* Rodriguez says not worried by fall in currency

* Rodgriguez sees lower growth next year as risks increase

By Krista Hughes

MEXICO CITY, Nov 13 (Reuters) – Mexico’s peso is being
buffeted by investor worries about the global economic outlook
but the sell off in riskier currencies does not necessarily
herald a capital exodus from Latin America’s second-largest
economy, a senior finance ministry official said on Tuesday.

Deputy Finance Minister Gerardo Rodriguez said he was not
worried by a nearly 0.6 percent dip in the peso early on Tuesday
to its lowest in almost three months, saying it was reacting to
concerns about the U.S. government budget and Greece’s debt

“The (peso) is operating like an automatic stabilizer of the
economy, reacting to the changes in the (world) environment,” he

told reporters on the sidelines of an International Chamber
of Commerce forum in Mexico City.

Mexico has gained popularity among investors this year as
economic growth in its rival Brazil slowed and a new Mexican
government promised reforms. The peso’s gain of more than 5.0
percent against the U.S. dollar so far this year is the seventh
best performance among the world’s 36 most-traded currencies.

But the trend may be turning. The peso is down about 1.0
percent so far this month and bets on further appreciation of
the currency on the Chicago derivatives exchange have fallen in
recent weeks after hitting a six-month high in early October.

Foreign holdings of Mexican debt fell by 15 billion pesos
($1.13 billion) from Oct. 31 to Nov. 1, the fifth-biggest
one-day decline since the start of July, although they still
total more than 1.4 trillion pesos ($106.64 billion).

The level of foreign holdings still leaves Mexico vulnerable
to a repeat of the capital flight of late 2008 and early 2009
following the collapse of investment bank Lehman Brothers which
helped spark the country’s worst recession since the 1995
Tequila Crisis.

But Rodriguez said he did not think the risk of a capital
exodus was on the rise, although it bore watching.

“If there were an abrupt reversal in (capital) flows, that
is one of the risks that we need to keep monitoring,” he said.

Speaking at the same event, Guillermo Ortiz, chairman of the
board of Mexican bank Banorte, said the “risk on,
risk off swings” in investor sentiment of the last few months
did affect capital flows.

But Ortiz, who led Mexico’s central bank from 1998 to 2009,
said he did not expect the sort of exodus seen in 2008-09, when
foreign holdings of Mexican debt dropped 17 percent in just over
one month.

“It is unlikely that would be repeated again even in the
event of high uncertainty due to lack of political agreement in
the U.S.,” he said.


U.S. policymakers are under pressure to avoid a combination
of tax rises and spending cuts that could plunge the world’s
largest economy into recession and which is set to go into
effect at the end of the year if Congress does not reach a deal
on deficit reduction.

Mexico, which sends roughly 80 percent of its exports to the
United States, had been relatively resilient despite the current
global slowdown, notching economic growth of 4.3 percent in the
first half of the year.

But Rodriguez said growth would probably slow to 3.5 percent
in 2013, lower than the 3.5 percent to 4 percent range the
finance ministry forecast two months ago.

“The balance of risks to our central scenario has
deteriorated … because of the general slowing in economic
activity in emerging markets,” he said.

The central bank has said it expects growth of between 3.5
percent and 4.0 percent in 2012, and growth for 2013 of between
3 and 4 percent, as the global slowdown begins to bite.