Mexican peso sinks 4%, leads global drop

Bloomberg

The Mexican peso led global currency losses after President Andres Manuel Lopez Obrador rejected calls for fiscal stimulus to offset the impact of the coronavirus (Covid-19) pandemic.
The peso sank as much as 4% amid a global sell-off, its third decline in four days. While economists forecast the economy could contract as much as 7% this year, the president, commonly known as AMLO, says he won’t step in to aid the corporate sector. That makes him almost unique among world leaders, and hasn’t gone down well with investors.
“We definitely need a fiscal stimulus package, in addition to the urgent need for monetary easing,” said Claudia Ceja, a strategist at BBVA in Mexico City. “If there’s failure to do so, it’s difficult to see an early exit from the coming recession.”
AMLO’s reluctance to boost spending has drawn parallels with Brazil, where President Jair Bolsonaro has downplayed the pandemic and failed to lead a nationwide response, triggering a similar market reaction.
Brazil’s real has slumped 21 percent since mid-January, the third-worst performer among 24 emerging-market peers tracked by Bloomberg.
BBVA strategists said in a note Wednesday that without a plan of action, Mexico may lose its investment grade rating in the next two to four years. Last week, S&P Global Ratings cut Mexico’s sovereign credit score to BBB, two notches above junk.
Mexico’s financial stability council also warned in a statement that elevated volatility could lead to further downgrades.
The Mexican peso has underperformed other emerging-market currencies since mid-February, after outshining peers in the first few weeks of 2020. Yet authorities have been slow to react as the oil-price slump and the spread of the coronavirus hammer Mexican assets. The currency has lost 20% of its value in the first three months of the year, the worst quarterly performance in half a century.