RemittancesGateway.org

Mexico’s Peso Slides for a Second Week as Remittances Decline

Monday, 05 January 2009 19:48

Jan. 2 (Bloomberg) -- Mexico’s peso posted its second weekly decline as a central bank report showing remittances fell in November added to concerns that a deepening economic slump in the U.S. will further curb dollar flows to the country.

The peso lost a fifth of its value last year, posting its worst decline in over a decade as dollar flows from oil exports, foreign direct investment and remittances dwindled. Money transfers from workers abroad fell 11 percent during November from the same month a year ago, the second-biggest decline since the central bank began tracking the data in 1995. Transfers fell 2.6 percent to $21.6 billion in the first 11 months of 2008 from the same period in 2007.

The decline in remittances “shows that one of the most important sources of inflows to the Mexican economy is shrinking,” said Bartosz Pawlowski, an emerging-market strategist at TD Securities Inc. in London. “The situation in the U.S. labor market has impacted the amount of money that Mexicans send back home. That’s troublesome.”

The peso fell 2.4 percent this week. It weakened 0.3 percent today to 13.7603 per U.S. dollar at 5 p.m. New York time, from 13.7146 yesterday. The Mexican currency slid 20 percent last year, the worst annual decline since 1995. The U.S. buys about 80 percent of Mexican exports.

The plunging U.S. economy has put Mexican laborers out of work. About 38 percent of Mexican immigrants in the U.S. work in construction and manufacturing, according to the central bank. Transfers from abroad, Mexico’s third-biggest source of dollar revenue, are heading for the first yearly decline since the central bank began tracking the data in 1995.

Oil’s Decline

Prices of oil, Mexico’s biggest source of dollar flows, fell 54 percent last year, the first annual decline since 2001. Foreign direct investment, the country’s second-biggest source of dollar-based income, dropped 15 percent in the first three quarters of 2008 compared to the same period in 2007, the government said in November.

Mexican bonds rose for a third day, pushing benchmark yields to a two-week low, on mounting speculation slowing economic growth will curb inflation this year.

Inflation will decelerate to 3.6 percent at the end of 2009, Pawlowski said. Consumer prices rose 6.5 percent in the 12 months through December, according to the median estimate of four economists surveyed by Bloomberg. Banco de Mexico is slated to publish December’s inflation report next week.

Yields on the government’s benchmark bond fell eight basis points, or 0.08 percentage point, to 8.18 percent, according to Banco Santander SA. The price on the 10 percent bond due December 2024 rose 0.83 centavo to 116.18 centavos per peso.