Bank of Mexico Sells Additional Dollar Hedges to Support Peso
December 26 2017 - 10:28AM
Dow Jones News
By Anthony Harrup
MEXICO CITY -- The Bank of Mexico auctioned $500 million in
dollar hedging contracts Tuesday, expanding its existing program
from the current $5 billion in response to recent volatility that
had sent the peso to a nine-month low against the U.S. dollar.
The foreign exchange commission, which includes officials of the
central bank and the finance ministry, cited recent volatility in
the exchange rate and lack of liquidity in the market in its
decision to increase the amount of hedges.
The central bank placed $250 million in 30-day nondeliverable
forwards at an average exchange rate of 19.6256 to the dollar, and
$250 million in 57-day forwards at 19.6918 per dollar. Demand was
$255 million for the one-month and $375 million for the two-month
contracts.
If the peso is weaker when the contracts mature, the central
bank pays the difference in pesos, and if the local currency
appreciates, the bank receives the difference. The hedges are a way
for the central bank to support the exchange market without
depleting Mexico's international reserves, which currently stand
around $172.5 billion.
The hedging program for up to $20 billion was set up in February
2017 after the peso had sunk to record lows, weakening as far as 22
to the dollar. The bank sold an initial $1 billion in forwards, and
later increased the amount to $5 billion between late October and
early December. The bank rolls over the contracts as they
expire.
The commission said Tuesday's decision is aimed at providing
liquidity, and that it will take additional measures if needed to
maintain an orderly market. The principal anchor for the value of
the currency, however, will continue to be ensuring solid economic
fundamentals, it said.
The peso was quoted in Mexico City at 19.57 to the dollar
following the auctions, compared with 19.7385 late Friday.
Write to Anthony Harrup at anthony.harrup@wsj.com
(END) Dow Jones Newswires
December 26, 2017 10:13 ET (15:13 GMT)
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