A customer waits for a vendor at a fruit stand in Mexico City, May 9, 2023.Toya Sarno Jordan (Bloomberg)
The Mexican peso has been crowned again this week. Given the uncertainty in the discussion of the debt ceiling in the United States, the Latin American currency appreciated to 17.42 units per dollar, its best level since May 2016. Breaking this new barrier, the peso tops the list of the best-performing emerging currencies so far this year, an inertia that began in mid-2022. Although after reaching this new floor it depreciated slightly to 17.75 units per dollar, forecasts are still favorable for the currency, which devalued to 25 pesos per US currency in 2020. The main question to be answered is how much longer the parity will be maintained in favor of the peso. The signs for a more accurate approach, analysts agree, are on the other side of the border: in the decisions of monetary policy and economic performance in the United States.
The forecasts of the financial quarters still contemplate a weakened dollar due to the uncertainty in the discussion about its debt ceiling, as well as the signals of the Federal Reserve that it will stop the rise in its interest rates, in a range of 5% to 5.25%. Despite the fact that the halt in the rate hike were to materialize, the differential with Mexico's rate – located at 11.25% – will continue to be wide, a gap that will play in favor of the Latin American country. In addition to the restrictive policy of the Bank of Mexico, other factors that have contributed to this good run in parity have been the flow of dollars that arrive in the country through exports, foreign direct investment and remittances – the country received an unprecedented figure in 2022: more than 58,000 million dollars – as well as healthy public finances. without an alarming level of debt and political stability compared to other emerging countries.
"Yes, it has been surprising that the peso is below 18 pesos per dollar because it went against all odds," acknowledges Gabriela Siller, director of Analysis at Banco Base. The specialist attributes the appreciation of the Mexican peso to the increase in the flows of dollars that arrive from abroad via exports, remittances and foreign investment, as well as to the international preference of investors to take pesos as a means of investment: "This occurs when there is no fear and then they leave the dollars and take other assets with a better perspective of return. The peso is the most liquid currency in all of Latin America, there are no opening or exit hours and investors this gives investors the security that they can leave or enter whenever they want, "he details.
Siller even affirms that there is still room for a greater appreciation, towards levels of 17.20 pesos per dollar. However, it warns that a floor beyond this exchange rate would be very unlikely due to a probable recession in the United States, a scenario that would slow the flows of exports and remittances to Mexican territory and boost risk aversion that now does not permeate among investors.
The so-called superpeso helps to lower the prices of imported items and thereby contain inflation. "What is best for any country is to benefit the consumer and then if you are importing cheaper and you are helping inflation there could be a positive bias. As we import a lot to produce locally it helps you improve prices, some question of doubt, when converting the external debt into pesos you get cheaper, it has also helped the public sector a little, "says James Salazar, deputy director of economic analysis of CIBanco.
The exchange rate at these levels carries a balance of winners and losers. César Salazar, a researcher at UNAM's Institute of Economic Research, points out that a relatively appreciated exchange rate is better for the Mexican economy. "Regularly, the stages of economic expansion in Mexico have coincided with stages of exchange rate appreciation, it is not something negative, in principle, but in truth, an appreciation as it is in which we are breaking more and more floors, could generate competitiveness problems at some point. A strong appreciation makes us less competitive abroad and that can affect workers' wages."
Carlos Serrano, chief economist at BBVA Mexico, agrees that this exchange rate is reaching levels that are a headwind for sectors such as exports, tourism and people who receive remittances and have seen their purchasing power reduced. In BBVA Mexico, the forecast suggests that the currency will close between 18 and 18.5 pesos, while Banco Base forecasts outline an exchange rate of 18.10 units per dollar by the end of 2023.
Along the same lines, José Abugaber, president of the Confederation of Industrial Chambers of Mexico (Concamin) recently warned that industries such as textiles, footwear and electronics will be harmed by increasing export costs, a factor that also limits the country's competitiveness. "They are industries that have to go to sell and promote and if I return with a client to raise prices they will leave us and go to China," said the businessman.
The outlook for the Mexican currency is still encouraging. Even so, with a slight depreciation for the Mexican currency that is anticipated towards the last half of this year, specialists agree that the Mexican peso will still maintain a level of strength against the dollar in 2023, below 19 units, a good level compared to the quotes of three years ago when a dollar came to be exchanged for 25 pesos.
Subscribe hereto the newsletter of EL PAÍS Mexico and receive all the informative keys of the news of this country