MacroScope

Mexico Central Bank Governor Agustin Carstens spoke to Reuters Insider on the sidelines of this year’s IMF/G20 meetings. He said the peso, which like many other emerging market currencies has taken a drubbing with the dollar’s recent rally, is undervalued. But unlike in Brazil, where an even more volatile exchange rate has prompted the monetary authorities to step in, Carstens said Mexico does not see the need to intervene.

As long as the markets continue to work well, I think central bank intervention is not required. If we guide ourselves by fundamentals the peso should appreciate soon.

Asked about the path of monetary policy for Mexico, Carstens said he backs a “neutral” stance for now given all the uncertainty in the global economy. Until recently, analysts were betting the central bank would lower borrowing costs to offset the drag from a global economic slowdown. But the peso’s steep depreciation, with its potentially inflationary implications, has muddled the outlook for Mexican interest rates, currently at 4.5 percent. Mexico is struggling to recover from a deep recession in 2009, with growth seen below 4 percent this year, and is particularly vulnerable to lower U.S. demand.