MNI POLICY: Mexico FX Intervention Only Amid Market Disorder

MNI (BRASILIA) - Mexico would only intervene in foreign exchange markets if the peso’s depreciation became disorderly, MNI understands. 

Any intervention would not aim to prevent depreciation but would be triggered only if there were significant disruptions to market functioning, as there is no specific exchange rate target. 

There is some concern in markets about a possible dive in the Mexican currency if Donald Trump wins the U.S. presidency in Tuesday's election given his stances on immigration and tariffs. 

In the event of an intervention, the authorities would follow the approach taken in previous episodes of volatility, using tools that the foreign exchange commission has used in the past, MNI understands. If the depreciation continues as it has in recent months, there would likely be no intervention.

While the depreciation observed since June has been considerable, the authorities have notably not intervened, as conditions remained orderly and operating conditions healthy.

Mexico’s Foreign Exchange (FX) Commission comprises both the central bank (Banxico) and the Ministry of Finance and Public Credit, which holds the presiding and deciding vote.

Recently, the Mexican peso faced a deep depreciation, moving from a high of 19.26 per USD on Oct. 12 to 20.29 this Friday, the last business day before the U.S. election. (See MNI: Latam Policymakers Concerned About US Elections at IMF)

Although policymakers are closely monitoring the situation, the peso could depreciate sharply but in an orderly way. Given the large trading volume of the Mexican peso, reserves — currently around USD200 billion — would be insufficient to fully halt a persistent decline.