Bernanke touts strides in Mexico’s monetary policy

Pesos by Flickr user AleiexReuters, 10/14/2013

Federal Reserve Chairman Ben Bernanke on Monday praised Mexico’s central bank for reining in inflation and keeping financial crises at bay.

In a speech that made no reference to the current outlook for the U.S. economy or monetary policy, Bernanke said transparency and independence had been key to increasing stability in the Mexican economy.

“The changes to the monetary policy framework, along with greater fiscal discipline and the adoption of a more flexible exchange rate, soon bore fruit,” Bernanke said in prerecorded video to be aired at a celebration of 20 years of Mexican central bank independence, in Mexico City.

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In Emerging-Market Selloff, Mexican Peso Sparkles

currency - coinsThe Wall Street Journal, 8/29/2013

The Mexican peso has held up better than most emerging-market currencies, which have suffered as investors grapple with the possibility that the U.S. Federal Reserve will cut back its stimulus program. Now, some investors say Mexico’s improving economy and its ties to the U.S. make the country a far safer bet than most other emerging markets.

In Latin America, the Brazilian real has lost about 16% to the dollar this year to trade at four-year lows, and the Colombian and Chilean pesos have slid 9.6% and 7.8% respectively. Elsewhere, the Indian rupee has spiraled to a record low, losing 23% against the dollar in 2013, with the Indonesian rupiah down 13.4% and the Turkish lira 13.6% lower. The Mexican peso sparkles by comparison, having dropped about 4.5% since the beginning of the year.

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Mexican peso at crossroads between reform rally, Fed taper

financeReuters, 7/18/2013

For those who like volatility, there’s money to be made on the Mexican peso. It could rally on the hopes of a more robust future for Latin America’s second-biggest economy. Or it might get hammered by U.S. Federal Reserve policy moves. Maybe both will happen in the next six months.

While other regional economies are suffering from China’s slowing demand for commodities, Mexico is humming along. Factory exports to the United States are seen picking up and a series of economic reforms has investors seeing a brighter future.

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Mexico: foreign investors staying put?

asian currencyFinancial Times, 7/8/2013

Even before Ben Bernanke hinted back in May that the US Federal Reserve could soon start scaling back its massive bond-buying programme, Mexican bonds were feeling the pinch. From 3.9 per cent in late April, yields on the country’s most-traded dollar-denominated bond, the so-called M24, rose by as much as 160bp before settling at 5.18 per cent – or 128.7bp higher – at the end of last week. But is this really a Fed effect?

It would be easy to attribute the sudden rise in yields to foreign investors selling off emerging market assets as they worry about the end of QE. But the reality is more complex. Data from Banco de México, the central bank, show that foreigners held their Mexican bond positions pretty steady over the past couple of months. In late May, for example, they owned $93bn in government bonds. As of June 25, the amount of bonds held in foreign hands was $80bn, a decline of 14 per cent. Looked at another way, the amount of Mexican bonds being held by foreign investors is still some 6.4 per cent higher than the $75.2bn they held at the end of December 2012.

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Videgaray Says Mexico’s Growth to Quicken as Spending Rises

luis videgarayBloomberg, 6/17/2013

Mexico’s economic growth will quicken as the government increases spending in the second half of the year, Finance Minister Luis Videgaray said. The economy grew at the slowest pace in more than three years in the first quarter after spending was contained after a new government took over in December, Videgaray said in an interview in London. President Enrique Pena Nieto took office on Dec. 1.

Investor confidence in Mexico has waned after the economy expanded less than analysts expected in the first quarter and government plans to overhaul the state-controlled oil industry were held up. Capital flows also have slowed on signs the U.S. Federal Reserve could scale back asset purchases as economic growth strengthens. “We expect much more accelerated spending in the second semester,” Videgaray said. “The budget is there and the revenue is there.” Mexico’s government spending fell about 7 percent in real terms to 1.16 trillion pesos, or $90 billion, in the first four months of 2013 compared to the year-earlier period, according to data from the central bank.

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Mexican Banks Get Ahead of New Global Capital Standards

Edward C. Skelton, Federal Reserve Bank of Dallas, 9/2012

Mexico is a prominent example of an emerging-market economy with a world-class macroeconomic policy framework and stable financial system. Even when the Mexican economy contracted 6 percent and per-capita gross domestic product (GDP) dropped almost 10 percent in 2009, the banking system remained strong. Although earnings have fallen over the past three years, Mexican banks have managed to post relatively healthy and consistent profits for more than a decade (Chart 1). By comparison, U.S. institutions lost money in 2009 and subsequently recorded a return on assets of about half the Mexican sum.

The impending adoption of worldclass capital adequacy standards highlights the Mexican system’s advances. Following the global financial crisis, the Basel Committee on Banking Supervision released new capital and liquidity requirements for the industry worldwide.2 Mexico has announced it will install the Basel III capital standards by early 2013 and plans to be one of the first countries to complete full implementation. Financial regulators elsewhere are also introducing new capital regulations consistent with Basel III. However, most countries, including all of the industrialized economies, have indicated they will phase in the more stringent requirements over the next few years.

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