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Currency War Spreading to Mexico as Carstens Signals Rate Cuts
By Jens Erik Gould and Andres R. Martinez


Nov. 10 (Bloomberg) -- The peso’s biggest rally on record may prompt Mexico’s central bank to cut interest rates next year to boost exports after other Latin American policy makers raised borrowing costs to cool their economies.

Governor Agustin Carstens signaled during a Nov. 2 meeting with economists in New York that he would consider cutting rates should the peso keep gaining, according to analysts from Barclays Capital, Deutsche Bank AG and UBS AG who attended the meeting. The bank may lower borrowing costs a quarter percentage point to 4.25 percent by March, Mexican futures trading show.

Foreign investment in short-term Mexican notes known as Cetes has risen more than six-fold since the end of 2009 as investors looked for alternatives to near-zero interest rates in the U.S. and Europe. Inflows almost doubled last month to 70.4 billion pesos ($5.78 billion) as international investors anticipated the Federal Reserve would pump additional liquidity into the U.S. economy. China said this week the Fed’s decision to purchase $600 billion in U.S. Treasuries threatens to “shock” emerging markets with “hot money.”

“Mexico runs the risk of being slammed by the markets,” said Alonso Cervera, a Latin American economist at Credit Suisse Group in Mexico City who attended the meeting with Carstens in New York. “If there’s a rally in the peso, we shouldn’t be surprised if they choose to cut rates.” ..........(more)

The complete piece is at: http://noir.bloomberg.com/apps/news?pid=20601087&sid=agtfWtd22wKQ&pos=7