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UPDATE 1-Mexico's finance chief says watching nervous markets closely
June 20, 2013 / 8:59 PM / 4 years ago

UPDATE 1-Mexico's finance chief says watching nervous markets closely

MEXICO CITY, June 20 (Reuters) - Mexico will closely monitor local markets to make sure they remain liquid and orderly given an "over-reaction" to signals the U.S. Federal Reserve may start winding down its economic support, Finance Minister Luis Videgaray said on Thursday.

Mexico's peso has fallen about 4 percent since Federal Reserve Chairman Ben Bernanke said on Wednesday the U.S. central bank might start to ease back on bond buying later this year, and stocks fell by more than 4 percent on Thursday.

Videgaray, speaking after a meeting of the Mexican financial stability committee, said he expected markets to remain jumpy in coming days but added it was important to remember that a stronger U.S. economy was good news for Mexico, which sends the bulk of its exports to its northern neighbor.

"We think it's a matter of market over-reaction, but of course we will remain very attentive to make sure that markets work well, that they have enough liquidity," he told local radio.

"At the moment we have plenty of liquidity in the currency market, for example, but we will be monitoring to make sure that ... normal market conditions prevail."

Some market participants have speculated that Mexico might reinstate dollar auctions to smooth sharp falls in the peso, but Videgaray did not comment specifically on the auction mechanism.

Officials earlier this year suspended an automatic trigger that launches dollar auctions whenever the peso declines by at least 2 percent against the dollar in a single session. The peso fell 1.5 percent on Thursday from Wednesday's official close.

"We do of course expect that the peso will remain volatile in coming days, and emerging market currencies in general will remain volatile, but without a doubt the exchange rate is working to absorb these shocks so that they are not transmitted to the rest of the economy, as used to happen in the past," Videgaray said.

In a statement, the financial stability committee said Mexico's solid economic fundamentals meant markets had continued to behave in an orderly manner, but it would remain alert to the risks posed from an increase in volatility on global markets.

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