Analysts in the country agreed that the factors that could depreciate the peso to 25 units or a 20% depreciation in 2022 would have to be as important as a financial crisis like the one in 2008 or something as relevant as having a Trump-type threat in the upcoming US elections or a political event such as Britain leaving the European Union.
At the close of this Friday, the Mexican currency showed an intraday appreciation of 0.62%, enough to be able to return to levels below 20 units. Compared to the previous Friday, the peso showed its best performance in eight weeks and remained the third strongest emerging currency against the dollar so far in 2022 with an appreciation of 2.8%.
James Salazar, deputy director of economic analysis at CI Banco stressed that it is very difficult to try to anticipate what could happen based on past episodes, since it becomes a result that may not necessarily be valid, so he thinks that the main element that is in favor of the Mexican currency is the issue of real rates of return.
“The expectations that we have for the end of the year is 20.20 and for next year about 21.30 units, we are talking that by 2023 we are expecting a depreciation of close to 6% or in the worst case above 22 units with a 10% loss. What we think is a little bit exaggerates that 20% perspective (from Moody’s), although it cannot be ruled out,” added Salazar.
Alejandro Saldaña, chief economist at Grupo Financiero Ve por Más, indicated that the Mexican peso has shown remarkable resilience in the last year, in a context of general strengthening of the dollar. He indicated that this resilience of the peso can be explained by various factors: the attractive differential between interest rates paid in pesos versus those paid in dollars; double-digit growth in receiving remittances; the trade surplus, seen from mid-2020 to early 2022 and macroeconomic stability, reflected in the investment grade of the country’s credit rating.
At the end of the year, Saldaña estimated that the exchange rate could go to levels close to 21 pesos per dollar, as the Fed continues to raise interest rates more strongly than discounted by some market participants; an increasingly uncertain global economic environment; the possibility that the growth in remittances will lose vigor, in line with a lower dynamism in the North American economy; and, finally, the trade balance enters deficit territory.
According to data from Banco Base, the great depreciations of the Mexican peso in the last 30 years have been in the period from March 1993 to November 1995 with a loss of value of 165.2% when going from 3.10 to 8.2 pesos per dollar, this is gave around the error of December 1994, economic crisis and change to free floating regime. The other important period was from May 2013 to February 11, 2016 when it lost 62.9% due to speculation prior to the start of the Fed’s interest rate hike cycle and oil prices collapsed to record lows, in addition to the start of the Trump threats.
“I don’t know if Moody’s has any kind of assumptions in which a scenario as complicated as the one we had with the arrival of Trump and later with the issue of the pandemic, which was when the exchange rate reached an all-time high, was achieved. . I see it as difficult for the exchange rate to reach 24 units, we do not have it in our base scenario, but in any case we do expect there to be a greater depreciation in the second half of next year, but not at those levels”, said Janneth Quiroz, deputy director of economic analysis at Monex.
An important event that could generate volatility in the exchange rate would be the upcoming November elections in the US and therefore, analysts do not rule out a depreciation at the end of the year, but not to levels of 25 pesos as Moody’s forecasts. not that it could have a ceiling of 20.30 units.
Jessica Roldán, chief economist at Finamex, agreed that it is difficult to give a high probability of occurrence to an episode of imminent exchange rate depreciation, and less of that magnitude. Since he commented that if the environment of a wide interest rate differential between Mexico and the United States, fiscal deficits in line and external accounts without imbalances, there are no clear elements that suggest that the currency loses stability in the coming months.
“It is true that we live in particularly volatile times, of great uncertainty, and in which agents are still calibrating the effects of a tightening of monetary and financial conditions and, on the other hand, of possible generalized recessions in various economies. It is difficult to give a high probability of occurrence to an episode of imminent exchange rate depreciation, and less of that magnitude”, indicated Roldán.
Vector’s chief economist, Rodolfo Navarrete, stressed that although it is relatively difficult to predict the future behavior of the exchange rate, today it is not possible to detect elements that would allow us to perceive a prompt depreciation of our currency. Since there are factors such as Mexican macroeconomic balances that have been better than many of our peers in sovereign rating and interest rates are sufficiently competitive.