The Mexican Peso's Performance and the Role of Economic Policies
As of September 2016, the Mexican peso experienced a significant loss in value, which prompted a surge of attention and scrutiny. In this article, we will delve into the underlying factors contributing to this depreciation, the stability of the currency, and the impact of recent economic policies under President Andrés Manuel López Obrador.
Understanding Currency Depreciation
The broad answer to why the Mexican peso is losing value lies in fiscal irresponsibility on the part of the government. However, it is important to note that this fiscal irresponsibility does not necessarily lead to inflation or other catastrophic events immediately. While there could be inflation as a result, the causality is not always straightforward.
Current Stability of the Mexican Peso
Recent trends indicate that the Mexican peso has stabilized, perhaps even underperforming market expectations. As of September 2016, the peso's exchange rate stood at 18.94 to the U.S. dollar, a better position compared to almost two years ago. This stabilization can be attributed, in part, to the economic policies implemented by the Central Bank of Mexico and the government.
Inflation and Economic Policies
The Bank of Mexico has been inflating the money supply by expanding credit at a rate faster than that of other nations' central banks. This action aims to stimulate economic growth and counteract deflationary pressures. However, rapid credit expansion can lead to inflation, which is a critical factor to monitor.
Recent Revaluation and Exchange Rate
The Mexican peso is currently the eighth most traded currency globally and the top currency in Latin America. Since the election of President Andrés Manuel López Obrador, the peso has experienced significant revaluation. Despite the revaluation, the peso has remained stable, fluctuating between 19 to 20 pesos per dollar.
Disruptive Economic Policies and Market Skepticism
President López Obrador's economic policies have been characterized as disruptive, which has led to market skepticism. While the market does not inherently distrust the government, it is wary of the potential impacts of new policies on long-term economic stability. In the short-term, we can anticipate continued market skepticism as the government implements reforms that shake up core institutions and personnel.
In the medium-to-long term, the economic reforms may present significant upsides and potential downsides. While we can model these scenarios, the exact outcomes remain uncertain. The essential message here is that market skepticism is an expected reaction to disruptive economic policies, and stakeholders must carefully evaluate the long-term potential of these reforms.
Regarding inflation, the latest data from the National Statistics and Geo-Information Institute of Mexico (INEGI) indicates a positive trend in the cost of living indicators. However, it is crucial to continuously monitor inflation rates to ensure that the expansion of credit does not lead to unsustainable levels of inflation.
In conclusion, the Mexican peso's performance is a complex interplay of economic policies, market perceptions, and broader economic factors. While the exchange rate has stabilized, the road ahead for the peso and the Mexican economy remains uncertain. Policy makers and stakeholders must remain vigilant and adaptable in the face of changing economic conditions.