Moody’s warns of ‘imminent’ peso depreciation

Mexico City. – Moody’s Analytics has warned that the peso will see an “imminent” 20 percent depreciation against the dollar at the end of this year or in 2023, despite the fact that the Mexican currency has been one of the strongest against the US currency.

In a report titled Coming Depreciation, Moody’s Analytics estimated a “significant depreciation correction in the coming months” based on a model that replicates the monetary and financial conditions of the last two global crises: the 2009 and 2020 crisis.

“The ongoing monetary tightening in the United States could lead to an exchange rate correction like that which occurred during the previous cycle of interest rate hikes by the Federal Reserve (Fed), which began at the end of 2015. In this situation, a depreciation of the The Mexican peso seems imminent.”

In the document, Moody’s Analytics acknowledges that the Mexican peso remained relatively stable after the initial shock from the Covid-19 pandemic in the first half of 2020.

Despite this, anticipate a “decline correction” due to monetary tightening by the Federal Reserve in the face of high inflation facing the US.

He explained that this could happen between the end of 2022 and throughout 2023, although he clarified that it could be delayed until 2024 depending on the speed of the monetary tightening cycle by the Federal Reserve and the reaction of monetary policy in Mexico.

In this regard, Moody’s Analytics noted that in 2009 the Mexican peso experienced a three-stage cycle: an initial depreciation resulting from the onset of the recession, followed by a revaluation of a lower volume and then a depreciation of a similar magnitude to the initial volume.