Mexico’s Peso Rises Most in Three Weeks After Citigroup Rescue

By Valerie Rota

Nov. 24 (Bloomberg) -- Mexico’s peso rose the most in more than three weeks after a U.S. government rescue of Citigroup Inc. fueled demand for higher-yielding, emerging-market assets.

“It is echoing a rally in global markets,” said Juan Carlos Lopez, head currency trader at Intercam Casa de Cambio SA in Mexico City. “A failure to rescue Citi would have been a terrible crisis.”

The peso gained 2.3 percent to 13.4013 per U.S. dollar at 5 p.m. New York time, from 13.7199 on Nov. 21. It rose the most since advancing 2.5 percent on Oct. 30.

Most emerging-market currencies gained against the dollar on speculation the Citigroup rescue will bolster financial- market stability and shore up economic growth. The U.S. is the biggest buyer of developing-nation exports, purchasing about 80 percent of Mexican goods sold abroad.

Citigroup, the second-biggest U.S. bank by assets, got $306 billion of U.S. government guarantees for troubled assets and a $20 billion cash injection after its stock plunged 60 percent last week. It gained 58 percent today, helping push up the Standard & Poor’s 500 Index by 6.5 percent.

Mexico’s peso remained higher after a central bank report showed annual inflation surged to a seven-year high in the first half of November. Consumer prices rose 6.18 percent in the first two weeks of this month compared with the same period a year ago, Banco de Mexico said today. They advanced 5.86 percent in the first half of October from a year earlier.

‘Some Support’

The inflation report suggests that Banco de Mexico, which targets inflation at 3 percent, will hold off from cutting its key 8.25 percent rate until the first quarter of 2009 even amid bets the U.S. Federal Reserve will reduce borrowing costs to 0.5 percent, Benito Berber, a strategist at RBS Greenwich Capital Markets, wrote in a research note.

A delay in a rate cut by Mexico’s central bank “will translate into some support for the peso,” Berber wrote. “However, the support coming from interest-rate differential will be marginal as the peso will be more influenced by the prospects of increased deterioration of the U.S. economy.”

Berber forecasts that the peso will weaken to 14.9 per dollar by the second quarter of 2009.

Merrill Lynch & Co. and Credit Suisse Group reduced their forecasts today for Mexico’s economic growth next year. Merrill expects the economy to expand 0.4 percent next year, down from a previous estimate of 0.9 percent. Credit Suisse cut its growth projection to 0.6 percent from 1.5 percent.

Yields on Mexico’s 10 percent bond due in December 2024, the most-traded security, dropped 24 basis points, or 0.24 percentage point, to 9.5 percent, the lowest level since Nov. 11. The bond’s price rose 1.98 centavos to 104.07 centavos per peso, according to Banco Santander SA.

To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net.