Mexico’s peso weakness on the back of the coronavirus outbreak complicates a looming rate decision, the central bank governor told Reuters on Friday.
The coronavirus has sent shockwaves through financial markets and prompted flows from emerging markets to safe-haven currencies like the dollar.
Battered by global market turmoil over a crude price war and the coronavirus spread, the Mexican peso MXN= hit all-time lows against the dollar this week. That could lead to inflationary pass-throughs from more costly imports.
The central bank’s March 26 monetary policy meeting will evaluate the complex scenario of the coronavirus, falling oil prices, and a higher risk premium for sovereign debt and state oil company Pemex, governor Alejandro Diaz de Leon told Reuters in an interview on Friday.
Selling dollars is an instrument in the arsenal available to the bank, Diaz de Leon said.
However, he said Banco de Mexico preferred to use foreign exchange auctions to support the peso because they do not reduce the country’s foreign reserves.
The bank was still evaluating how the environment of risk aversion and higher risk premiums will impact the economy, financial markets, and inflation, Diaz de Leon said.
The impact on inflation from the expected economic shock due to the coronavirus fallout will take time to materialize, he said, and could eventually lead to lower inflationary pressures if demand drops.
Reporting by Anthony Esposito and Abraham Gonzalez; Writing by Daina Beth Solomon; Editing by Frank Jack Daniel and Rosalba O’Brien