The International Monetary Fund on Tuesday trimmed its economic growth forecasts for Mexico citing a decline in oil production, which funds nearly a third of the country’s budget.
In its yearly analysis of Latin America’s second-largest economy, the IMF also urged the central bank to taper foreign exchange intervention aimed at stemming the peso’s deep slide, arguing it would sap reserves over time.
The IMF lowered estimates for Mexico’s economic expansion to 2.5 percent for next year from 2.8 percent predicted in October, citing expected cuts in production at state-owned oil giant Pemex. It also lowered this year’s forecast to 2.25 percent, from 2.3 percent previously.
The Fund said growth could be even lower if capital flow volatility spikes, domestic oil production shrinks further, or the economy of the United States, Mexico’s chief export market, expands more slowly than expected.
The Fund praised the Bank of Mexico for keeping rates at a record low as growth has wobbled and inflation remains tame. But it recommended an end to daily dollar auctions to support the peso, which in the past year has slumped 30 percent against the dollar.
The central bank’s interventions have shrunk reserves to $182 billion as of September from $195.7 billion at the end of 2014, the IMF said.
“The current pace of intervention is not sustainable over the medium-term,” IMF staff wrote in the report.