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Montevideo, April 16th 2024 - 23:25 UTC

 

 

Moody's: Major devaluation of Mexican peso forecast

Monday, October 24th 2022 - 09:30 UTC
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The stability between Mexico's peso and the US dollar has turned the Latin American country into a relatively expensive economy as per international standards The stability between Mexico's peso and the US dollar has turned the Latin American country into a relatively expensive economy as per international standards

According to the credit rating agency Moody's, a devaluation of around 20% of the Mexican peso against the US dollar would be imminent and might take place later this year or in early 2023, it was reported.

The risk-measuring organization came to these conclusions due to the “ongoing monetary tightening” in the United States despite President Andrés Manuel López Obrador (AMLO) constantly boasting that the Mexican currency has managed to resist “against all odds” through the current instability and recession.

Moody's experts said in a report titled “The Coming Depreciation” which compares the 2009 and 2020 crises, the depreciation of the Mexican peso seems “imminent” since the same conditions of the previous cycle of interest rate hikes by the US Federal Reserve (FED) that began in 2015 are being replicated.

Mexico has so far mimicked the US Federal Reserve by increasing interest rates to curb inflation, which reached more than 8%, although food prices even doubled, due to the Russian invasion of Ukraine in a post-pandemic scenario.

Experts estimate that the upward cycle of rates in the United States will not end until 2024 in an attempt to return the inflation level to 2%, as the country suffers from the highest price index since the 80s, which could lead to a recession, with a rate of 9.1%.

AMLO criticized those who “rub their hands together” over Moodys' gloomy prediction, but warned that “they are going to be left wanting” because “it is not going to happen like this.” He insisted Mexico's economy was fine and will continue “to grow.”

The agency's report acknowledged that the Mexican peso “remained relatively stable after the initial shock generated by the pandemic in the first half of 2020” and resisted the current shocks from financial markets better than other Latin American currencies. However, monetary restrictions in the US anticipate “a depreciatory correction.”

The US dollar only grew by 0.9% against the Mexican peso since November 30, 2018, which helped control inflation in the Latin American country, at the expense of turning Mexico into a relatively expensive country, thus impacting its exports.

Bank of Mexico's Deputy Governor Gerardo Esquivel admitted last week that the country “could disassociate itself from the Federal Reserve's decisions.”

Categories: Economy, Latin America.
Tags: Mexico, Moody's.

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