Peso Plunge or Panic Attack? Experts Dismiss Dollar Drama
Experts dismiss recent peso depreciation as minor and temporary. They argue no major impact on average citizens, inflation, or economy. The central bank's actions and government measures have stabilized the market.
The depreciation of the peso against the dollar recorded recently is minor and should not worry society. In short, there is no alarm signal, said experts from the National University.
Therefore, what we can do is stay calm, be relaxed and not echo alarmist news, said the academic from the Institute of Economic Research (IIEc), Moritz Alberto Cruz Blanco.
We must calmly wait for the variations that we will see naturally. “The concern is for those who think they will be negatively affected, that is, those who have financial assets,” he clarified.
The expert considered that these exchange rate levels do not have a major impact on the “average citizen,” in their purchases or daily financial activities, since even though they have been short-term, they are small; the jump from 16 to 18 pesos per dollar is not “dramatic.” Consequently, he ruled out that there is a transfer to prices. That is, there would be no higher inflation.
The alarm would go off, said the professor of the Faculty of Economics (FE) and postgraduate tutor, Roberto Valencia Arriaga, if the situation continued for longer, but “undoubtedly, the Bank of Mexico would not allow it. To achieve its mandate of keeping inflation at its target, it would surely take actions to prevent that from happening.” In that way, we will hardly see that effect in the short term.
There has been talk of “nervousness” among investors and financial markets, but that is different from what is happening in reality; if they were really nervous, they would have left, the university professor estimated.
What seems to be behind it is rather an opportunity to obtain a good return due to the environment. In December 1994, the specialist recalled, the depreciation in a similar period of two weeks reached almost 60 percent; at that time the markets were indeed uneasy and there was a marked capital flight, which left a weak exchange rate.
In the 2008 crisis, the depreciation was 18.03 percent; the current one, of just over eight percent, has nothing to do with what happened in those two periods where there was panic, said Valencia Arriaga.
After the governor of the central bank, Victoria Rodríguez Ceja, declared that intervention could be carried out if volatility continued, the markets calmed down and stabilized.
If the exchange rate were more volatile than two percent, it could offer more dollars. That is, it would use the reserves, injecting foreign currency into the market and this would stop a possible depreciation.
That would be one of the most efficient measures in the short term. And if this were a persistent effect, a more drastic measure, Valencia Arriaga said, would be to raise the interest rate to make investments in our country more attractive and, finally, to influence expectations, that is, with the information that Banxico provides to the market, to give confidence that the monetary authority is monitoring what is happening with the exchange rate.
Furthermore, it must be remembered — added Moritz Alberto Cruz — that this situation has positive or negative implications for groups and sectors of the population. For example, if the dollar is cheap, exporters and those who receive remittances complain, although this generally implies lower inflation, which benefits society. In addition, many products are imported in Mexico and when the peso is appreciated it costs less to buy these goods, to mention another case.
The IIEC researcher added that precautionary measures have also been taken such as the advance payment of debt recently carried out by the Ministry of Finance, which demonstrated to the markets that there is liquidity to pay commitments in foreign currency and that there would be no risks of any kind. This lightens the burden of payments in the future, but at the same time sends the message that there are resources to deal with exchange rate contingencies.
There are no symptoms of a crisis; Nothing has changed in the real part or in the macro indicators of the economy, everything remains as it was before the elections of June 2 and positive forecasts of growth and macroeconomic stability continue, he pointed out.
So far in this six-year term we have found the average exchange rate at 19.55 pesos, that is, now we are still below; and if the national currency depreciates a little more, it does not necessarily have to result in a harmful effect for the economy, he specified.
