Mexico Peso Gains Most in 13 Years, Brazil Real Most Since 2002

By Michael J. Moore

Oct. 13 (Bloomberg) -- Mexico's peso rose the most since 1995 and Brazil's real had its biggest gain in six years as an unprecedented push by central banks to flood the global financial system with dollars buoyed demand for higher-yielding assets.

The peso climbed 5.9 percent to 12.3647 per dollar at 9:43 a.m. New York time, stemming a three-week rout sparked by the worst global financial crisis since the Great Depression. Brazil's real gained 6.2 percent to 2.1785 per dollar after sinking 11.6 percent last week.

It's ``a repercussion of what's going on in the international markets,'' said Vanderlei Arruda, who manages the foreign-exchange trading desk at Sao Paulo-based Corretora Souza Barros. ``The joint interest rate cuts and the government packages in Europe, the U.S. and Asia give the market more confidence.''

The peso's gain was the biggest since March 10, 1995, a day after Mexico announced tax increases and spending cuts aimed at shoring up investor confidence in the aftermath of a devaluation three months earlier. The peso had an intraday decline on Oct. 8 of 13.8 percent, the biggest since that devaluation.

Banco de Mexico sold $8.9 billion last week, including $6.4 billion on Oct. 10 alone, in an effort to shore up the peso after it slid to a record low of 14.2927.

``It seems that Mexican authorities have deactivated the speculative bubble,'' said Alfredo Coutino, a Latin America economist at Moody's Economy.com in West Chester, Pennsylvania.

Brazil's central bank also sold dollars the last three days of last week, tapping into record foreign reserves of more than $200 billion to stem the real's tumble.

Borrowing Costs Fall

The real has plunged 29 percent from a nine-year high reached Aug. 1, more than any other currency tracked by Bloomberg, except for the Zimbabwean dollar. Mexico's peso has dropped 20 percent from a six-year high reached on Aug. 4.

Global stock markets also rallied today after the Federal Reserve said that the ECB, Bank of England and the Swiss central bank will auction unlimited dollar funds with maturities of seven days, 28 days and 84 days at a fixed interest rate. All of the previous dollar swap arrangements between the Fed and other central banks were capped.

The announcement drove down interbank loan rates in dollars for three months today to 4.75 percent from 4.82 percent, the highest this year. The rate for euros over the same timeframe declined to 5.32 percent from 5.38 percent.

To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net