Reuters: US Dollar Report: UPDATE 1-Mexico ready to deal with peso volatility-Carstens

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UPDATE 1-Mexico ready to deal with peso volatility-Carstens Jun 1st 2012, 19:52 Fri Jun 1, 2012 3:52pm EDT * Carstens says Mexico equipped for peso swings * Currency drops to more than three-year low * Traders speculate about ad hoc intervention CANCUN, Mexico, June 1 (Reuters) - Mexico is well prepared to deal with peso volatility, central bank governor Agustin Carstens said on Friday, fanning speculation that the bank could unload more firepower to protect the currency. A precipitous drop in Mexico's peso to a more than three-year low is testing policymakers' commitment to a free-floating currency. Carstens said Mexico was committed to its flexible exchange rate, but he invoked the central bank's discretion to throw its weight into the market if needed. "In any case we are well equipped to face volatility in the case that we need to use resources to stabilize the market," Carstens said at an event in Cancun. But he added that Latin America's second-biggest economy would have to live with swings in its flexible exchange rate. "We are ... believers that we should let the exchange rate function to the greatest degree possible ... and introduce mechanisms that soften the movements, above all when markets are not operating fully," he said. Mexico's peso tumbled as much as 2 percent earlier in the session to hit its weakest since March 2009, adding to a more than 9 percent slump in May. A rebound in the euro helped curb the peso's losses and drag it into positive territory but traders said Carstens' comments fueled talk that the central bank could alter its current dollar auction mechanism and further supported the peso. Mexico has eschewed the ad-hoc market interventions seen Brazil, India and Indonesia and instead relies on a program where a large dip automatically triggers an auction of $400 million. Link this Share this Digg this Email Reprints

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