The president already raised it; on Wall Street are surprised by the strength of the Mexican peso against other currencies. For all those who truly bet on progress, this must be great news, however, it is worth a detailed analysis of the reasons that have kept the national currency below a convenient barrier. Because you have to recognize the good points that mean progress.
Like any market, the foreign exchange market is governed by the laws of supply and demand. A greater demand for dollars makes their price more expensive and depreciates the value of the peso. We would think that, in a scenario of slowed down economies, the best refuge and rescue is the purchase of dollars. However, the factors that the Central Bank has fostered in order to preserve stability have allowed a marginal shift by finding greater incentives for investment in pesos. The great difference between the Mexican and US reference rates allows this context to operate in favor of Mexicans. In a time of rising inflation, maintaining a healthy exchange rate is one of the priorities, and Banco de México has done so very effectively. The foregoing does not mean that such conditions come hand in hand with investment and growth.
And so, despite the fact that remittances should not be a point of presumption since they reveal a growing lack of job opportunities in the country, it is equally true that they represent a factor for the exchange rate strengthening of the Mexican peso. In April 2022, remittances destined for our country reached a record level of 4,720 million dollars, a figure that exceeds outflows from portfolio investment.
The forced disruption for investments destined for China and Russia has allowed a greater diversification of investment destined for our country without necessarily reaching adequate levels to trigger accelerated growth. The expectation of growth in exports of raw materials is real and favors our country in the face of the conditions of those who are damaged by the effects of the pandemic or by war causes that are known to all. Mexico has a significant opportunity there.
But the most important and noteworthy thing: the autonomy in the actions of the Bank of Mexico has been palpable and wise in these times of inflationary instability worldwide. In contrast, we cannot expect these conditions to remain throughout the year. The peso has already reached its equilibrium level against purchasing power. That floor of 19.45 pesos per dollar will be very difficult to overcome. But, a possible increase in the interest rate in the United States, a resurgence of covid in national territory or a prolonged war in Ukraine, are factors that would pressure the price of the dollar to increase.
Twitter: @gdeloya
political analyst
mid week
Guillermo Deloya Cobián is a native of Puebla, with a law degree, specializing in tax law, a master’s degree in economics and government, and a doctorate in strategic planning and development policies. He is currently pursuing a master’s degree in creative writing at the University of Salamanca.
He is a columnist and commentator in various national and local media, he has published eight books, in addition to various essays on topics ranging from the economic, political and legal, to a historical novel set in the 18th century.
He is a commentator and analyst on political, economic and legal issues at ADN40.
He has developed a constant teaching activity as a university professor both in Puebla and in CDMX.
He has a twenty-eight-year career in the public sector where he has held positions at the federal and state levels, in the Attorney General’s Office of Mexico City, in the Attorney General’s Office, in the Ministry of Finance and Public Credit , in the Council of the Federal Judiciary and the Government of the State of Puebla, was Coordinator of the National Institute for Federalism and Municipal Development, INAFED, of the Ministry of the Interior and has held various partisan positions.