Mexico's Peso, Bonds Rise as Central Bank Holds Benchmark Rate

Mexico's Peso, Bonds Rise as Central Bank Holds Benchmark Rate
By Valerie Rota

Jan. 18 (Bloomberg) -- Mexico's peso and bonds gained after the central bank kept benchmark borrowing costs at 7.5 percent, preserving the rate advantage on local securities over U.S. assets.
Yields on Mexico's most-traded security headed for back-to- back weekly declines for the first time since July. The five- member Banco de Mexico board today said it voted to keep the key lending rate at 7.5 percent for a third month after raising it a half-percentage point last year.
``Wider spreads help attract more investments toward Mexico,'' said Kevy Alcindor, an economist at Mexico City-based brokerage Vector Casa de Bolsa SA.
The peso gained 0.3 percent to 10.9148 per dollar from 10.9507 yesterday, pushing its advance this week to 0.9 percent.
The yield on the 10 percent bond due December 2024 fell 5.5 basis points, or 0.055 percentage point, to 8.01 percent at 10:48 a.m. New York time. It has fallen 28 basis points from a 14-month high on Jan. 4. The price today rose 0.57 centavo to 118.35 centavos per peso, according to Banco Santander SA.
Central bankers kept their benchmark rate unchanged amid concern that inflation may quicken even as growth slows in the country's biggest trading partner, the U.S.
Rising unemployment and a contraction in manufacturing output in the U.S. have led traders to boost bets that the Federal Reserve will cut lending rates this month. Interest-rate futures show 50 percent odds that Fed policy makers will cut their key rate by 0.75 percentage point to 3.5 percent when they meet on Jan. 30. Traders see a 100 percent likelihood of a half- point cut at the meeting.
A 75 basis-point Fed cut would be the biggest since June 1980 and would widen the spread with Mexico's benchmark to 4 percentage points.

To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net . Last Updated: January 18, 2008 11:43 EST