2023-06-25 12:26:46
At first Rosario Crisostomo thought she had been scammed when she counted the money her son had sent from the United States, but all there was was the value of the Mexican currency going up. Known for its weakness in the international foreign exchange market, the peso was considered among the best performing currencies in the world this year.
Thanks to a combination of high interest rates in the second largest economy in Latin America, financial stability, and the influx of remittances and foreign investments, the Mexican currency recorded gains in ten digits once morest the dollar in 2023.
“I thought they were cheating me and telling me that the dollar was low to give me a lower amount, but later I realized that was not the case,” Crisostomo told AFP from the town of Villachla in the state of Puebla, where she lives with her grandson.
About 4.6 million families across Mexico receive remittances, which are the country’s largest source of foreign currency, thanks in large part to Mexicans living in the United States.
The government estimates that transfers in 2023 may exceed the record amounts recorded last year, which amounted to more than $58 billion.
This month, the Mexican currency reached its highest level once morest the dollar since 2016, and was dubbed the “super peso.”
On Friday, it recorded regarding 17.1 per dollar, compared to 25 in March 2020 at the beginning of the Covid epidemic.
peso strength
Analysts say that “the strength of the peso is due in part to the level of the high basic interest rate in Mexico, which currently stands at 11.25%.” The interest rate was raised to combat inflation, but it attracted investors looking for higher returns.
The peso also improved thanks to the tendency of American companies such as Tesla to move production operations to Mexico instead of Asia, to be closer to the United States, which is called “proximity to the coasts,” according to experts.
“When investors are looking for a place to invest and looking at emerging markets, there is no country like Mexico in terms of proximity to the coast,” said Carlos Capistran, an economist at Bank of America Merrill Lynch.
Mexican miracle
The peso’s appreciation is seen by many as good news in a country that has experienced significant currency depreciation in the past. Leftist President Andres Manuel Lopez Obrador calls it a “Mexican miracle”.
Supporters of the improvement of the national currency assert that it brings benefits to the country, including the decline in the volume of Mexico’s external debt when calculating its value in pesos.
Conversely, a strong currency reduces exporters’ revenues.
“But I think a strong peso is better than an overall depreciation,” Lopez Obrador said.
gain and loss
Rogelio Garciamoreno, a farmer and vice-president of the private National Agricultural Council, sees himself as both a loser and a winner from the appreciation of the national currency.
“The prices of many supplies are declining in dollars, and we hope to buy them at better prices,” he said. The downside is that the peso’s strength is negatively affecting food exports.
Garciamoreno explained, “These products are priced in dollars. It affected us greatly because we got much less pesos than we thought.”
The United States is the destination for 80% of Mexico’s exports. The improvement in the value of the peso affects the factories known as “maquiladora”, which are set up by American companies in northern Mexico and rely on local workers to manufacture products that are later sold in the United States.
“This huge decline in the value of the dollar is bad for the maquiladora factories because they need more dollars to pay salaries and taxes,” said Jesus Manuel Salayandía of the National Chamber of Manufacturing Industry. But some say that the days of “Super Pesos” may be numbered.
Expectations of a depreciation of the “peso”
Financial analysts expect a slight decline in the value of the Mexican currency, in part due to the narrowing of interest rate differentials.
While Mexico’s central bank has indicated that it expects to keep interest rates at current levels “for an extended period”, the US Federal Reserve has indicated that it may raise rates by half a percentage point this year.
Capistran expects that “the peso will return to levels of approximately 19 to the dollar by the end of 2023.”
This news will be positive for Chrysostomo, who is struggling with the high cost of living. “Everything is increasing,” she said. Food prices are rising while we have less money.” (AFP)
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