“It’s hard to say anything positive,” Win Thin, global chief of emerging markets strategy for Brown Brothers Harriman, said about Latin America. The main cause of the pain has been the collapse of the global commodity complex, owed in large part to China’s less-than-smooth landing. Five years ago it was one of the world’s fastest growing regions, with 6.1% GDP growth this year, the way things are going, not so much. And nowhere is this truer than in Latin America. There are two problems, however: first, after intervening with daily auctions for the last four months, the Bank of Mexico’s foreign currency reserves are at their lowest point since October last year and second, the likelihood is that central bank intervention will have limited, if any, effect, for the simple reason that the current downward trend is a result of forces far beyond Mexico’s borders.Īt the beginning of 2014, the IMF warned in an uncharacteristically prescient forecast that things could turn ugly in emerging markets. The worse the situation gets, the more likely it is that Mexico’s Central Bank will intervene with its own mini bazookas. Particularly hard hit are companies with heavy debt loads denominated in dollars. With external trade accounting for 63% of the national economy, the impact is unavoidable. Some imported goods, including medical appliances, plastics and petrochemicals have registered price increases of between 10% and 15% over the last couple of months. Since then, the peso’s value has continued to slide against the dollar, and the pain is beginning to show.Īs El Financiero reports, although inflation, at around 3%, remains at historically low levels, pressures are beginning to rise. The Commission upped the ante, announcing it would conduct daily auctions of $52 million, without setting a minimum price requirement. Like so many central bank interventions these days, it failed: by March, it took 15 pesos to buy a dollar. In December last year, with the exchange rate dropping to 14 pesos to the dollar, the country’s Exchange Rate Commission launched a currency intervention program in a bid to prop up the peso, or at least stymie its slide. At 16.25 pesos to the dollar currently, the peso has lost roughly 20% of its value against the dollar within a year.
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