Some economists believe the pressure on the peso may continue for at least another six months, possibly provoking an inflationary spiral, especially if wobbly global financial markets fail to stabilize.
The decline in the price of oil has been the biggest factor that caused the peso to fall to a record low against the U.S. dollar January 8, noted Raul Feliz of the Centro de Investigation y Docencia Economicas. A prolonged depreciation in oil prices will have a negative effect on the Mexican economy – expected to grow by just 2.5 percent in 2016 – and keep up the pressure on the peso, he said.
In the past week the peso dropped to a low of 17.96 pesos, with the Mexico City airport and some banks trading above 18.
January 8, Mexico’s Central Bank sold off $US400 million to shore up the currency after it dropped more than 2.5 percent of its value.
The peso fell 16.8 percent in 2015 and has continued its slump by more than four percent this year.
Turbulence in China’s stock market and the interest-rate hike by the U.S. Federal Reserve are other significant reasons contributing to the peso’s current weakness, analysts say.
Agustin Carstens, governor of Mexico’s Central Bank, blamed the currency’s fall on an “over-reaction” to the China market chaos, and foresaw a rapid stabilization given that the nation’s economy was “fundamentally strong.”
The weaker peso is good news for tourists visiting Mexico and for this country’s exporters.
The agribusiness sector, including Jalisco’s growing berry industry, believe the current economic climate offers plenty of new opportunities for entrepreneurs to export their produce. However, if the peso continues to slide, the higher cost of imported materials will force some industrial sectors to pass the hikes on to consumers and fuel inflation.
In other economic news, on December 17 Mexico raised its interest rate by a quarter point to 3.25 percent. Meanwhile, the Mexican Stock Exchange has seen steady losses since the turn of the year.